How to get a short-term business loan

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Short-term business loans are loans with shorter repayment terms — from a few weeks to 24 months. Funding usually happens faster than with long-term loans, and lenders often have a simplified application process. Many small business owners use short-term loans to meet emergency cash flow needs, but one downfall is that interest may be higher than longer-term loans,  especially if the lender uses factor rates.

Online lenders are a common choice for short-term business loans, but traditional banks and credit unions also offer short-term business financing. Although the terms and funding differ from other small business loans, the process to apply and get approved is similar.

How to get a short-term business loan in 5 steps

If you have urgent cash needs for your business, a short-term loan may be the right funding choice. Here’s how to get a short-term business loan in five steps.

1. Determine how much funding you need

Short-term business loans can help cover upfront costs for a startup, emergency expenses or seasonal income gaps. The first step to getting a short-term business loan is determining how much funding you need.

Because short-term business loans tend to have much higher rates and more fees, determine what you plan to use the funds for and the minimum amount you’ll need. To make sure you can repay the borrowed funds, use a business loan calculator to estimate your monthly payments with different loan sizes and terms.

2. Decide what kind of loan you need

You might think of a short-term business loan as just one option, but there are several business loan types to choose from. Now that you know how much funding you need, consider each option, including repayment terms and borrowing costs, to decide what kind of loan is best for your needs.

For example, invoice factoring or invoice financing may be a good fit for businesses that invoice other businesses instead of working directly with consumers, especially if you can’t qualify for traditional loans. Merchant cash advances may be a more costly option but can be ideal for businesses that primarily make large volumes of credit card sales.

There are also secured and unsecured short-term business loans. Secured business loans use collateral, like real estate, inventory or business property, to minimize the lender’s risk, providing better terms for the applicant. Unsecured loans don’t have collateral requirements but are harder to qualify for.

Although not commonly marketed as a short-term loan, a business line of credit is also an option. It can help fund midsize purchases, providing flexible repayment terms for variable but regular expenses. As you make repayments, your available credit increases, allowing for continuous borrowing without taking out multiple loans.

3. Check your business’s eligibility

Regardless of the type of short-term business loan you plan to apply for, you’ll need to meet certain eligibility requirements for approval. Business loan requirements can vary by loan type, funding amount and lender.

You may need to provide the following information and documentation to be eligible for a short-term business loan:

• Personal credit score and financial history
• Length of time in business
• Annual revenue
• Business credit score
• Industry type
• A business plan
• A loan proposal

If you haven’t established a good business credit score yet, lenders will use your personal credit score. Depending on your personal credit score, the best terms and largest funding amounts may not be accessible to you. Building your business credit or improving your personal credit can help ensure you have options available when you need them and with favorable terms.

4. Research and compare lenders

Where you get your short-term loan is important. Researching and comparing lenders can help you get the best rate with the lowest fees. Here are a few ways to compare small business lenders:

• Ask peers in your community, industry or network for recommendations.
• Visit each lender’s website to compare loan options, eligibility requirements, costs and loan terms.
• Read third-party online reviews of each lender, including Bankrate’s.
• Check options with existing business relationship lenders, like the bank handling your business bank accounts.

5. Gather your documents and apply

Once you narrow down your lender options, you should have a good idea of what documents you need to get short-term business financing. Having your personal and business financial documents, business plan and legal documentation ready will speed up the application process.

Most lenders use online applications, especially for fast small business funding. After completing the application, the lender will review it. You will either be approved, asked for more documentation or rejected. If approved, funding should occur as soon as the same day or up to 72 hours for a short-term small business loan.

What to do if you’re rejected for a short-term loan

If you’re rejected for a short-term loan, here are some steps to take:

1. Ask why you were rejected. All lenders are required under the Equal Credit Opportunity Act (ECOA) to notify you in writing why you were rejected. Understanding why you were denied — even if it resulted from too much debt, poor credit or insufficient collateral — can help you get approved in your second round of applications.
2. Check your personal and business credit. If credit is the reason for denial, check your personal and business credit reports and scores to make sure there are no errors. If there are, work with the credit bureau to have them corrected. You can also work to improve your credit score for better approval odds on your next application.
3. Make sure your documents are correct. If you don’t provide your lender with accurate and correct documentation, it can cause an application denial. Check your documentation to ensure you have it in order.
4. Consider alternative lending solutions. Alternative lenders, like peer-to-peer lending, have more flexible requirements and don’t always require credit checks. If you can’t qualify for other short-term lenders, this may be a better solution for urgent funding needs.

Bottom line

Short-term business loans can cover revenue gaps and emergency expenses with fast funding — often in five days or less. Taking the right steps before applying can increase your chances of getting approved and ensure you’re able to meet the lender’s repayment terms.

If you’re rejected, you have options, like improving your credit score, finding another short-term lender or using an alternative lender.

Frequently asked questions

• Is a business line of credit a short-term loan?

  There are some business lines of credit that work like short-term business loans. Lenders like Bluevine offer lines of credit with repayment terms of six to 12 months. However, not every lender will offer this — and many business lines of credit will function more like a traditional business loan with longer repayment terms or revolving like a credit card.

• Can I get a short-term business loan with bad credit?

  It is possible to get a short-term loan with bad credit. Provided your business meets time in business and revenue requirements, you’ll likely have options with online or alternative lenders. However, you’ll likely see higher rates and fees.

• How does a short-term business loan work?

  A short-term business loan works similarly to a long-term business loan, but a short-term business loan provides quick access to funds with a shorter repayment period, usually no more than 24 months.