Know Your Options of Short-Term Loans for Your Small Business
Working capital is the lifeline of any business. Meeting payroll, managing inventory, and covering daily expenses are all part of day-to-day operations. To meet demands, short term business loans are available and can sustain operations or used for unforeseen costs when working capital is low during a slow market or certain business cycles.
If you are contemplating on applying for a short term business loan, read on.
Select banks in the United States offer short term business loans, one of them being US Bank, according to Fundera.com. Its short term loans (or Quick Loans as they call them) are just one of the series of products they offer for small businesses. It’s one you can apply for when you need to “top up” or require working capital.
A short term business loan usually involves less paperwork and quick underwriting compared to standard, long-term loans. Plus, they “can range from $5,000 to $250,000 with a maximum term of five years.” This is much shorter term from traditional loans and repayment to US Bank involves fixed monthly payments.
Now for the fine print. Fundera.com states that the fixed interest rates start at 5.99 percent. This is much higher than traditional, long-term loans, it’s a very competitive compared to other short term alternative lenders. Yet, you’ll have to secure the loan with equipment or general business assets, all depending on your credit score and history.
Aside from US Bank or other select banks, alternative lending is another option. These are becoming increasing popular (and share some benefits provided by US Bank) and are commonly used by businesses that no can longer qualify for loans through a traditional, big bank.
According to Fundera.com, alternative lenders – or hard money lenders – are attractive to small businesses looking for short term loans for a number of reasons including:
- Higher approval ratings. As small business loan approvals have been on the rise in 2019 among big banks, alternative lenders have much higher approvals of 61 to 64 percent.
- Provide the ability to grow your business. Obtaining a short term loan through an alternative lender offers the chance to purchase more inventory, take on or bid for projects, and meet obligatory business transactions, thus offering the chance for growth and cash flow.
- Quick approvals. Many loans can take a fraction of the time compared to big banks.
More of the fine print. Being unable to qualify for a short term loan at bank means your businesses is more of a risk. Risk means higher interest rates. According to Fundera.com, even with an immaculate credit score you may get a rate of 6 percent through the U.S. Small Business Administration. Otherwise, expect to pay a lot more interest (rates may vary and will depend on your credit score). A hard money lender will also offer less funding with shorter terms. This could potentially put a squeeze of your finances in the event business projections don’t happen or you failed to effectively plan.
Both courses of action to achieve short term loans have advantages and disadvantages for small businesses. It simply takes sharp business acumen, forecasting, and careful consideration to achieve the success you want.