Finding the right financing options is a major challenge for small businesses. Many small enterprises, including startups, don’t yet have collateral. In some cases, their structure requires a flexible lending option.
This is where short-term business loans come in. Unfortunately, you probably won’t have much luck at the bank. In fact, an average of a minimum of 80 percent of small business loan applications at banks are rejected. Fortunately, however, there are other options.
With a reputable non-bank short-term business loan option, you enjoy accessibility and versatility. Here’s everything you need to know about how to get a business loan without collateral or a stellar credit score.
What are Short-Term Business Loans?
A short-term business loan (also referred to as a short-term commercial loan or SBA loan) is a loan that you pay back over a short (or relatively short) repayment period. This period may range from three months to as long as three years.
Businesses that have trouble qualifying for a small business loan find that they are eligible for short-term business loans. But don’t just jump into a loan with a blindfold on. Always do your research and find out how reputable (or not) a lender is before you enter a loan agreement and accept the funds.
If you’re looking for short-term business loans with bad credit, make sure you find a reputable lender. Sadly, there are many fraudulent actors in the short-term loan industry.
Always take the time to research prospective lenders before even considering entering a loan agreement with them. Get fully acquainted with the lender as well as the loan and its terms. If you’re wondering, “Do mutual savings banks offer short term business loans?” be sure to check with a local branch.
Short-term business loans are often a useful tool for small businesses. After all, small businesses face frequent obstacles regarding long-term loan options.
How Does Short Term Financing Work?
With a short-term business loan, you receive the full loan amount as soon as you’re approved. Like with other traditional term loans, you are required to pay back the loan over a set period of time. Short-term loans have shorter loans.
If you go with a short-term line of credit, you have access to the cash, but you don’t have to take all of it. You have it there to draw on whenever expenses come up. If you have a short-term line of credit, you get the advantage of this cash access over a set short-term period.
How to Use Short-Term Business Loans
There are specific circumstances in which a short-term business loan may be a good choice for your enterprise. For example, an emergency may arise that you need funds to cover. Seasonal businesses sometimes use short-term business loans to keep them going during slow months.
You have one major focus to get a short-term business loan without collateral. You’ve got to show prospective lenders that you’ll probably be able to repay the loan in time. Show them your business plan and other evidence of your business’s success and likely continued success.
Short Term vs Long Term Business Loans
You pay the money back over a shorter term with a short-term business loan. Long-term business loans mean you have a much longer period to pay back the money.
Short-term business loans are more versatile because of their accessibility. Many companies unable to qualify for long-term business loans often get approved for short-term financing.
Short-Term Business Loans: Advantages and Disadvantages
Let’s explore some of the advantages of short-term business loans below.
Most small businesses, especially startups, don’t yet have any collateral. This is what makes long-term loans so inaccessible for them. You won’t have to worry about that requirement when you go the short-term business loan route.
While short-term loans are certainly the more versatile option, you do need your ducks in a row before you apply. Make sure you have all the necessary documentation at hand when putting together your application. You will usually need information on your credit scores, business banking records, and monthly sales volume.
Of course, short-term business loans have certain disadvantages. Here they are below:
Larger Monthly Payments
As short-term loans involve less time for repayment, the monthly payments are often larger. Of course, each payment you make includes not only the loan itself but also fees and interest. As long as you consider these larger payments when making your financing decision, a short-term loan may be the best option for you.
Higher Interest Rates
Short-term loans tend to have higher interest rates than long-term loans. Look for a short-term business loan with a between 5 and 15 percent interest rate. Stay far away from loan predators with predatory interest rates. In some cases, their interest rates may go as high as 200 percent in some cases.
Short-Term Business Loan Interest Rates
Short-term business loan interest rates are higher because they have more risk for the lender. That is a result of the fact that they don’t require collateral and don’t have the same stringent requirements as long-term business loans.
While you’ll have to be ready to pay a bit more in interest rates, don’t fall prey to exorbitant rates. There are plenty of dishonest characters in the short-term loan industry. While you will probably have to pay an interest rate of between 5 and 15 percent, don’t even consider going with anything much higher.
Best Short-Term Loans for Startup Businesses
Short-term business loans are the ideal option for startup businesses. But you’ve got to choose the right kind. Rok Financial has all the best small business loans with short-term contracts. We have short-term options for short-term loans, starting at six-month terms. Once you’re approved, you get the funds in one to three days.
Rok Financial also has options for short-term lines of credit, starting at six months. Your startup will benefit from a revolving line of credit starting at $10,000, and if you’re approved, you get access to this money in one to three days. A line of credit is a valuable tool for startups. If you have an emergency or need to buy new equipment to expand, you have the funds there.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.