Short-Term Business Loans: Get Funded in as Little as 24 Hours

Short-term business loans are exactly what they sound like: a way to get your business money for a temporary expense.

Here's how it usually works: You get a fixed amount of money as a lump sum, then pay it back over a relatively short time period, typically anywhere from six to 24 months, at a set interest rate.

Unlike some other types of loans and financing options, you can usually get approved for short-term financing fairly quickly. Plus, the nature of these loans means payments are usually predictable.

In general, short-term financing is great for things like covering payroll in a lull, buying inventory in bulk, acquiring new equipment, covering one-time emergencies, and taking advantage of a particularly advantageous strategic opportunity for your business.

Comparing Short-Term Financing Options

There's an important difference between a “short-term loan” and more general “short-term financing.”

Short-term business loans are what I explained earlier: A lump sum of money paid over a short time with a set APR.

Short-term financing, on the other hand, includes short-term loans and other types of lending options that go beyond what you might think of as traditional “loans.” They're different, but also best suited for specific, short-term costs. They include:

• Business lines of credit

• Merchant cash advances

• Invoice factoring

Here's a chart to help you compare all of the options:

Types of Short-Term Business Financing

Here's a more in-depth explanation of each type of financing, including how it works, its key benefits, and when it makes the most sense to consider. Each one serves slightly different purposes, and depending on your business's specific needs and financial history.

• Short-term business loan. This is the most obvious option. To reiterate: it's a lump sum of money paid back with a set interest rate over a fairly short period of time (up to two years). The payments can be bigger, but the trade-off is that you finish paying it off faster.

• Business line of credit. Think of this as similar to a credit card, but for your business. You have revolving access to funds, and only pay interest on what you use. It can be a nice-to-have as a safety net for when business slows down or unexpected expenses come up.

• Merchant cash advance. A merchant cash advance is a type of financing where a business agrees to receive a lump sum of money upfront in exchange for a portion of its future sales. Instead of using an interest rate to determine your total payback, MCAs usually use factor rates. For example: An advance amount of $20,000 with a factor rate of 1.3 would equal a $26,000 total repayment cost.

• Invoice factoring. This is when a business sells its unpaid invoices to something called a factoring company. That factoring company takes on the legwork of collecting payments from your customers in exchange for an upfront payment and a cut of the invoices.

Short-Term vs. Long-Term Loans

With short-term loans, you pay more overall for the benefit of getting faster funding and easier qualification requirements. With long-term business loans, it's the opposite, and you can borrow larger amounts to be repaid over several years (usually through a bank or SBA-backed program).

Here's a comparison:

Qualifying for a Short-Term Business Loan

Here's a more in-depth breakdown of the eligibility requirements:

Time in Business

One of the first things lenders check is how long your business has existed. It helps signal stability to them. In their eyes, the longer you've been operating, the lower lending risk you represent. That's why we recommend you be in business for at least six months.

Monthly and Annual Revenue

The amount of money you're bringing in tells lenders how much they can safely lend to you. The more revenue, the higher the loan you'll qualify for. Clarify requires businesses to generate at least $10,000 per month in revenue, and we also look at the last three to four months of your bank statements.

Credit Score and Credit History

Having a lower or bad credit score doesn't necessarily count you out of short-term financing options. Clarify, for example, sometimes accepts scores as low as 500. But the higher your credit score, the better your offer, especially when it comes to APR rates.

Clarify often accepts borrowers with a minimum credit score of 500, though a score of 550 or above will generally get you a stronger offer. Some lenders may also review your business credit profile to assess overall creditworthiness.

Business Plan

I strongly recommend drafting a business plan if you're applying for short-term funding options. It makes you look more professional in the eyes of lenders and shows them you're serious about growth and success. The document should lay out your business goals, approximate revenue expectations, and the way you plan to use the working capital to advance your operations.

Documentation

You should be ready to show the following documents:

• Three to four months of recent bank statements

• Business tax returns or financial statements

• Proof of business ownership and registration

• Government-issued ID

Some lenders may also require what's called a personal guarantee when getting a short-term business loan. That means you agree to be personally responsible for repaying the loan if your business can't.

How To Get Short-Term Business Funding

If you decide to apply for short-term financing options, the application process looks like this:

1. Submit your application. In most cases, you'll answer some questions about your business, including basic financial details. It's usually pretty simple, and with Clarify, it only takes a few minutes.

2. Get matched with an advisor. If you use Clarify, you'll get paired with an in-house advisor. This person will review your application and help you compare financing options.

3. Learn about approval and review your offer. If approved, you'll get a breakdown of your loan amount, interest rate, total cost, repayment schedule, and total cost. Clarify always aims to be transparent (that means no hidden fees or surprises).

4. Receive your funds. If you accept a funding offer, you might receive the money in your account in as little as 24 to 72 hours. It depends on your specific situation and profile. From there, you'll start following your repayment plan of weekly or monthly installments over a six to 24-month period.

How To Use Short-Term Business Loans

These are some of the business expenses that are most suitable to cover with short-term business loans:

Pros and Cons of Short-Term Financing

All loan options have benefits and trade-offs. Let's be clear about them with short-term financing:

How To Choose the Right Option

When you're comparing lending options, it might be helpful to ask yourself these questions:

• Loan amount: How much do I need? How much am I realistically eligible for?

• Speed: How urgent is this?

• Cost: What would my total repayment really be, including interest rates and fees?

• Structure: Do I prefer fixed or flexible repayment?

• Payments: Can I keep up with the repayment schedule? Can my cash flow handle it?

If you're still not sure, here's how to know when a short-term loan makes sense versus when it doesn't:

How To Manage Repayment

Managing the repayment of a short-term loan isn't necessarily difficult, but it can still put pressure on your business. Here are a few habits you should practice that can go a long way to avoid falling behind:

• Keep a close eye on your cash flow

• Plan for and prioritize loan repayment

• Set up auto-pay so you don't miss payments

• Use the funds with a clear strategy

• Avoid stacking multiple loans unless absolutely necessary

• Refinance if necessary

Look Out for Predatory Lenders

Not all lenders have your business's best interest at heart. Though regulators do flag complaints about things like misleading disclosures and fees, getting stuck in a confusing financing agreement is much more common than you might think.

Here's what to look out for to avoid a predatory lender:

• Unclear pricing

• Confusing fee structures

• No explanation of total repayment

• Aggressive sales tactics and pressure

Always make sure to understand:

• APR vs. factor rate

• Prepayment terms

• Personal guarantee requirements

FAQs About Short-Term Financing

Business owners often ask me questions like these about short-term loans.