Short-term business loans may seem like a savior in your time of need, but these loans can be a risky proposition due to higher interest rates and fast payback times. A recent study shows that 82% of business failures are due to poor cash-flow management.
Take stock of your current business plan and outlook before taking out a short-term business loan that you may not be able to repay, lest you find yourself locked into a cycle of business debt and escalating fees or penalties. For optimal results, make sure you understand the key points of a short-term loan as well as which available loans are the best.
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What Is a Short-Term Loan?
As the name suggests, a short-term business loan must be repaid within a short period of time or risk escalating penalties. These penalties may include fees as well as increased interest rates, resulting in what appears to be a good financial stopgap becoming an unintentional drain on company resources. Unlike long-term loans, these loans may typically not be refinanced with the same company, and they are usually one-time offers instead of revolving credit.
7 Best Short-Term Loans
Making the best of the available short-term loan opportunities involves knowing each lender and what they have to offer. Minimum credit scores and annual business revenues are standard in the industry. Many companies also have additional restrictions, including time in business or specific payment processes that they use to vet potential clients. Understanding these elements and associated terms can help you find the right match for your company’s needs.
Kabbage
Kabbage is a very popular lender that offers loans to individuals or companies with less-than-stellar credit. Businesses may apply for loans ranging from $2,000 to $250,000 if they meet the company’s minimum requirements.
- Minimum credit score: 560.
- Minimum business revenue: $50,000 per year.
- Specific restrictions: 1 year in business.
Bluevine
Bluevine offers loans with lower interest rates for borrowers who can meet higher minimums. Their rates are often 10-20% lower than those of less stringent lenders.
- Minimum credit score: 600.
- Minimum business revenue: $100,000 per year.
- Specific restrictions: 6 months in business.
OnDeck
OnDeck relies less on credit score and more on business revenue, putting it squarely between the previous two lenders when it comes to ease of borrowing. This makes it a good choice for established businesses that may have struggled with credit or payments in the past.
- Minimum credit score: 500.
- Minimum business revenue: $100,000 per year.
- Specific restrictions: 1 year in business.
StreetShares offers the opposite side of OnDeck’s coin. Companies with fair to good credit and less revenue are more likely to obtain loans through StreetShares.
- Minimum credit score: 600.
- Minimum business revenue: $50,000 per year.
- Specific restrictions: 1 year in business.
FundBox
FundBox is potentially the best choice for borrowers who do not have a fair to good credit score looking for a traditional short-term loan. They offer a low minimum revenue requirement paired with no minimum credit score.
- Minimum credit score: No minimum.
- Minimum business revenue: $50,000 per year.
- Specific restrictions: 3 months in business.
PayPal Working Capital
PayPal Working Capital also requires no minimum credit score, and their threshold for revenue is much lower than many other lenders. The catch is that borrowers must accept payments through PayPal. A percentage of income derived through PayPal or PayPal merchant (credit card processing) payments is removed from each transaction until the loan is fully repaid.
- Minimum credit score: N/A.
- Minimum business revenue: $15,000 per year.
- Specific restrictions: Must Use PayPal Payment Processing / 3 months in business.
Lendio
Lendio does not issue loans directly. Rather, the company is a marketplace for many different lenders. Lendio requires a minimum credit score of 560 to apply for loans, and additional requirements vary by lender. Borrowers who have been turned down by many others can benefit from getting 25 to 75 different lenders to review their loans through the Lendio marketplace.
- Minimum credit score: 560.
- Minimum business revenue: Varies by lender.
- Specific restrictions: Vary by lender.
Pros and Cons of Short-Term Loans
Ultimately, the allure of quick cash is the greatest benefit of a short-term loan. Anytime a loan can keep you from racking up fees and penalties with your vendors, investors or other business partners, it may be a valuable tool at your disposal. Short-term business loans can be a great way to float net 30 or net 90 payments until your accounts receivable team can process them. It can also help keep you out of trouble with those who expect returns on their investment or other promises your company has made.
Just take care to ensure that you don’t end up in the cash-flow death spiral that can occur when you rely too heavily on borrowing versus generating revenue. The higher APR and frequent payments required may be too great a strain, especially if it doesn’t save money in the long term. Explaining the potential cons to investors and vendors may help you renegotiate terms that don’t require you to take on additional debt, which may harm your organization’s cash flow.
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