Your Guide to Short Term Loans for Business Owners



In this guide, you’ll learn:

  • What a short-term loan is
  • Signs your small business may need a short-term loan
  • Types of short-term loans for small business owners
  • Pros and cons of short-term loans

As an entrepreneur, you’re constantly focused on the big picture.

But it’s important not to lose sight of the short-term needs of your small business, as there won’t be a long-term if you get tripped up by day-to-day obstacles. A short-term small business loan can help your business overcome those obstacles.

What is a Short-Term Loan?

A short-term business loan is a loan with a short repayment period, typically 18 months or less. With this type of financing, you can access funds within a week of submitting your loan application – particularly if you use an online lender, such as Biz2Credit.

Signs Your Small Business May Need a Short-Term Loan

Here are some common signs that your small business may need a short-term loan:

Your Working Capital Ratio is Too Low

Your working capital (current assets minus current liabilities) is a way to determine your ability to meet financial obligations over the next year. Your current assets include cash and cash equivalents, accounts receivable, prepaid expenses, and inventory. Accounts payable, accrued expenses, notes payable, and taxes payable are a few current liabilities. The ideal working capital ratio (current assets / current liabilities) is widely considered to be between 1.5 and 2. If your working capital ratio is below this range, you may need additional funds to avoid financial trouble.

You Want to Invest in Marketing

An excellent product or service won’t generate revenue if nobody knows it exists. The good news is you don’t need a massive budget to advertise your small business. You can hire an agency to build a website and create a lot of SEO content for a low five-figure sum; with this strategy, you could generate leads months or years after your initial investment.

You could also invest in traditional forms of advertising, such as television and print. You may see quicker results, but the upfront investment is often on the higher end.

You Need a New Piece of Equipment

As a small business owner, there may come a day when something unexpectedly breaks down, and you need a new piece of equipment immediately. You may be able to replace a $1,200 laptop without taking out a short-term loan but might have a tough time buying a $50,000 piece of machinery with cash.

In an urgent situation, you should ask a business lender how long it takes to get approval and funding for a loan. You could be stuck waiting for weeks or months with a traditional bank or credit union.

There is an Economic Slowdown

In early 2020, COVID-19 started spreading worldwide, forcing countless businesses to shut down to protect customers and employees from the virus. While the worst of the virus seems to be in the past, the U.S. economy is in a precarious position in 2022. We might not match the level of damage experienced in 2020, but your small business could see declining revenue or rising costs if it hasn’t already.

The good news is we are unlikely to experience a slowdown that lasts anywhere close to as long as the Great Depression since the federal government and central bank have proven they are willing and able to prevent long-lasting weakness in the economy. So, a short-term loan of 12-18 months should allow you to weather most future storms.

Types of Short-Term Loans for Small Business Owners

So, you’ve decided your small business needs a short-term loan… or you want to be prepared if/when you need this type of small business funding. You have several loan options, but a few of these options aren’t technically “loans” – they function as short-term small business financing solutions.

Term Loan

A term loan provides the borrower with upfront cash to be paid back on a set schedule at a variable or fixed interest rate. You can get a term loan from a traditional lender or online lender. You can use a term loan for various short-term business needs, including equipment, inventory, and seasonal staff, as well as long-term needs, such as real estate.

You can get a term loan with a payment plan ranging from 1 year to as long as 25+ years with some lenders, so this isn’t exclusively a short-term financing option. In addition, you may have to wait months to get funded if you get a term loan through a financial institution. By using an online lender, such as Biz2Credit, however, you can get a term loan with a 12-to-18-month payment plan in less than a week, making this a viable option for short-term needs.

To qualify for a term loan with an online lender, you typically need annual revenue above $250k, a 660+ credit score, and at least 18 months in business. With Biz2Credit, you can get rates as low as 7.99%.

Business Credit Card

A business credit card allows you to finance your business’s short-term needs and, at the same time, build your business’s credit history. You may not want to use a business credit card if you won’t be able to pay off your balance for a few months, but if you expect to have the money by the end of your billing cycle, you should consider using this financing option.

With a business credit card, you may get perks such as cash back, sign-up bonuses, travel rewards, and more. The Capital One Spark Cash for Business card, Chase Ink Business Preferred card, and American Express Business Gold card are a few of the best business credit cards.

Business Line of Credit

A business line of credit has much in common with a business credit card. This type of financing allows small business owners to access money up to a certain limit for general business expenses. There is no lump-sum disbursement; you only borrow what you need when the money is needed and only pay interest on the amounts borrowed. A business line of credit usually has a variable interest rate.

This small business financing option is ideal for unpredictable, short-term needs, as the line of credit is available whenever necessary, and you can use the funds however necessary.

You don’t have to meet high eligibility requirements to qualify for a business line of credit from an online funder; $10,000 in average monthly revenue, a 580+ credit score, and 12 months in business are likely to be sufficient.

Merchant Cash Advance

A merchant cash advance (MCA) provides a lump sum to a small business owner to be paid back based on future sales. The amount of money to be repaid is calculated by taking the lump sum and multiplying it by a factor rate (typically somewhere between 1.2 and 1.5). The payments can be based on a percentage of your estimated future sales or actual sales. So, if you expect to have revenue of $50,000 per month at the time you receive the MCA, but your numbers end up being much higher or lower, your selected option could significantly impact how long it takes to repay the MCA.

It’s not hard to qualify for an MCA, as a credit score of 525-550 is often sufficient. But the annual percentage rate (APR) is on the higher end, so you might want to consider other types of short-term loans if you have a good credit score.

Invoice Factoring

With invoice factoring, you can sell your outstanding invoices at a discount to a factoring company and get immediate cash. You receive the value of the invoices minus a 1-5% factoring fee; the factoring fee depends on the customer’s creditworthiness and whether the company has recourse in the event of nonpayment. All things being equal, a recourse factor has a lower fee than a nonrecourse factor.

The fees on this small business financing option may seem inconsequential, but here’s the thing: invoices are usually paid in a short period of time. A fee of, say, 2%, applied over a couple of weeks, works out to a high APR. But an easy approval process makes invoice factoring worth considering… once in a while.

Invoice Financing

Invoice financing is another way to turn your invoices into cash. But with this small business financing option, you borrow against the value of the invoices.

For example, you have a $10,000 unpaid invoice and borrow $9,000 with invoice financing. You collect the payment three weeks later. You would pay the lender the $9,000 plus fees.

You can get fast cash for your small business by using invoice financing. But the fees can be high on an annualized basis, as we’ve seen with the merchant cash advance and invoice factoring.

Pros and Cons of Short-Term Loans

Let’s examine some pros and cons of using short-term loans.


Here are a few pros:

  • Easier application and approval: with a longer-term loan, the lender must be confident in the borrower’s long-term future. In addition, the loan amounts tend to be higher. So, the lender must do their due diligence and only accept the most creditworthy small business owners. With a short-term loan, the lender recoups the funds quickly, and loan amounts tend to be lower, so an easy loan application process and an easy approval process are common.
  • Fast funding: the easier application and approval processes allow the borrower to get fast funding in many cases.
  • Potential for low interest rate: it’s possible to get a low interest rate with certain types of short-term loans, such as term loans.



Here are a few cons:

  • Frequent payments: you may have to make daily or weekly payments instead of monthly payments on a short-term financing option. The repayment terms can be an issue if you have a very short-term (7-10 day) cash flow problem.
  • Easy to overuse: the cost appears inconsequential with certain types of short-term financing, such as invoice factoring and invoice financing. So, it’s easy to use them a lot. The costs can add up to a large amount over time, though.
  • Potential for high interest rate: yes, the interest rate is a pro and a con. You could pay a high “equivalent” annualized interest rate on a merchant cash advance, invoice factoring, and invoice financing.

The Bottom Line

A single short-term loan isn’t likely to make or break your small business, but it’s possible to turn to this type of small business funding option several times over the years. With this in mind, it’s essential to use the right type of loan for each situation your small business faces.

Getting the funds in your account as soon as possible is also essential. With Biz2Credit, fast funding is the norm. Paul Gerald, who owns G&G Healthcare, needed money in his bank account in 3 days or less. David Tenpa, a Biz2Credit Loan Specialist, helped get him the funds. According to Gerald, “David said money would be there in 48 hours and 48 hours later, there was money in the bank.”

Learn how Biz2Credit can connect you with straightforward funding made for your business.

How to get instant access to financing