Here’s how a short term business loan works

Short term business loans function the same way as any other loan. A borrower receives funds that they agree to pay back by a certain time. Just like other business loans, short term loans come with fees and interest rates. The main differences are that these fast business loans have smaller amounts, shorter payment periods, and higher interest rates.

It’s not uncommon for funders, or alternative funding companies, to request that borrowers pay back the funding on a weekly or daily basis. Having enough capital to cover these payments will ensure that you can pay the small business loan on time and without penalty. Business owners often choose to assess their debt and cash flow before applying for a short term business loan. If you believe you would need more than a week to come up with the loan payment, you may want to consider another business funding option with longer terms.

How Can a Short Term Loan Help a Business?

You may be wondering when a short term business loan would actually be beneficial. While they’re not for every business, they do provide some relief during unexpected situations. For example, a small business that comes across an opportunity to deliver an enormous order of products to a customer who can’t pay the purchase order right away can use the funds from short term business loans to cover the inventory expense. Once the customer pays, the business owner should be able to pay off the remaining balance on the business loan. Without the help of the short term loan, the business wouldn’t have been able to take on such a great opportunity. These fast business loans are extremely helpful for owners who know they can pay off the loan in full in a short amount of time.

How to qualify for short term business funding

Most companies are able to qualify for a short term business loan. This is why this financing option tends to be desirable. Small Business Funders look at business owners’ personal credit scores to determine how qualified they are. Typically, they approve merchants with an average credit score Small Business Funding, based on their past and future revenue.

Small Business Funders also tend to look at a business’s cash flow projections. Small businesses that are able to demonstrate consistent monthly revenue are more likely to receive approval over a business that has inconsistent months of revenue. For instance, a business that steadily brings in $7,000 or more on a monthly basis is considered stable as compared to a business that fluctuates between bringing in $5,000-$7,000 each month. The purpose of looking into cash flow is to ensure that the business won’t be relying on cash flow financing through the short term loan for more than 30 days.

At the same time, Small Business Funders normally like to check a business’s bank statement to see how many times their balance has gone negative. For example, Small Business Funders will consider qualifying a small business that has had a negative balance four times over the span of three months over a business that has had a negative balance five or more times over the same span of time. If a business can’t keep a positive balance in their business account, it likely shows that the applicant will have trouble making payments on time.

Characteristically, borrowers don’t have to jump through hoops to get qualified for short term business loans. Once you submit all of the necessary documents, the approval process is fairly quick. However, short term business loans could potentially cost you more than you think.