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Cash-flow gaps can happen to any business. You may manage your business correctly and sell the world's most wanted product and still suffer from money issues. Unexpected emergencies and expenses are often the cause, but sometimes the market just slows down. For example, summers in warm climates may cause firewood sales to drop and ice cream sales to rise.

You can deal with these cash-flow problems in a number of ways from laying off employees to getting a short-term business loan. If you know sales will pick back up; a short-term business loan is probably the best option because you need your employees when the income lull is over. The problem lies in finding a loan that’s reasonable and won’t turn into a long-term burden.

We looked at every popular short-term loan offer and lender to compile a list of the best short-term business loans to remove some of the mystery for you. We chose loans based on credit score needed, loan amount, percentage rate, and the length of the repayment periods. Shorter repayment periods with lower interest rates make the best loans, but those circumstances are elusive.

Types Of Short-Term Business Loans

It's important to understand the kind of loan you're seeking. You may not need a $100,000 loan with 18 months to repay if you only need a little cash-flow to get past a slow holiday or season. At the same time, a large loan in a specific amount is probably the best option for emergencies like a fire or natural disaster when insurance companies are dragging their feet.

Several new types of lenders and loans have appeared over the last two decades while digital currency and online banking made themselves critical to many business models. Some more modern lenders offer a much wider variety of loan options than traditional lenders. Depending on the lender, short-term business loans go by many names, but most fall into one of four categories including:

  • Merchant cash advances
  • A line of credit
  • Invoice financing
  • An actual short-term loan

A merchant cash advance is similar to a loan, but the repayment method is different and sometimes easier on you. A lender gives you money, and you let them leech a percentage of your credit card sales to pay it back. Be wary of these loans since the interest rates can be worse than credit cards depending on the lender and repayment times, but it is easy to pay back since you don’t actually do anything but sell.

A line of credit is an excellent option if you aren't sure how much money you need or may need in the future. A lender agrees to let you use a set or flexible amount of their money in a way that mimics a credit card. However, interest rates on a line of credit are usually lower than those associated with a typical business credit card. A credit card is an option if you have the credit score for one as well.

Invoice financing is sort of like a merchant cash advance in reverse. A lender loans your business money based on your outstanding invoices which are handy if you're having trouble getting customers to pay promptly. When the invoice is paid the lender takes a percentage of the money with a little interest tacked on to it. Interest rates with this type of loan are usually low.

An actual short-term loan is exactly what it sounds like; a lender loans the business money that you pay back in installments or in one balloon payment at an agreed upon time. The interest rates vary wildly with this type of loan based on credit scores, collateral, and repayment terms. Unless you need a large sum of money for a new business location or something similar, this type of loan isn’t ideal.

Comparison Table

Short Term Business Loans

Details

Paypal Working Capital

Simple loan that works like a merchant cash advance

Interest rates as low as 1.55 percent

OnDeck

Regular loans and lines of credit from $5,000 to $500,000 with interest rates starting at 9.99 percent annually. 

Funding Circle

Loan up to $500,000 if you qualify

Street Shares

They offer all four types of short-term loans up to $250,000

They’ll often work with very young businesses and owners 

QuarterSpot

Interest rates from roughly 20 to 48 percent annually on most types of business loans

LendingClub

Interest rate is locked in and the rates start at 7.77 percentEnter your text here...

Fundation

They work by giving you other lender’s money to work with

They offer a line of credit up to $250,000 with up to 12 months to repay it

Best Short-Term Business Loans And Lenders

Loans

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Since short-term business loans only come in four versions with many different names, specific loan types aren't easy to determine or review with any accuracy. Loans and lenders evolve quickly, and some lenders tailor the loan to your needs to make it a little easier to pay back. In that spirit, our list is mostly lenders and the best business loans that offer.

Paypal

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They offer a simple loan that works like a merchant cash advance. You get some money, and they take a percentage of your PayPal sales. There's no credit check, and you can get a loan up to $200,000 with a $125,000 limit on your first loan. Interests rates range from 15 to 30 percent which is higher than we’d like, but you only make payments on the loan when you make a sale.

Dollar bill

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They offer most types of short-term business loans at interest rates as low as 1.55 percent. Loan amounts on most plans cap out at $250,000. They offer these loans to people with lower credit scores as well. If you need fast cash with a reasonable interest rate, Credibly may be the only place you have to look. The repayment times might be too short for some young businesses.

OnDeck

They offer regular loans and lines of credit from $5,000 to $500,000 with interest rates starting at 9.99 percent annually. Your business needs to be a year old at least to apply, and you'll need a credit score of 500 at the minimum. It only takes a day to two to get a decision from them along with the money if you’re approved. Repayment times are flexible with some plans offering up to three years of time.

Funding Circle

They help investors invest while assisting you with your money woes. They don’t often deal with business younger than two years, and they require a better than average credit score for approval. Their interest rates are low and start at 4.99 percent annually. You’ll have to wait up to two weeks for a decision, but they’ll loan you up to $500,000 if you qualify. Repayment plans range from six to 60 months.

Street Shares

They've made their way onto practically every business or finance related website which lends a little to their reputation. They offer all four types of short-term loans up to $250,000 at interest rates starting around eight percent annually. Your business must be at least a year old, and you'll need to maintain a credit score of 620 or better to get considered for any of their loans.

Dollar bill

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They offer every type of short-term business loan with some additional services like business expansion loans and inventory loans. They’ll often work with very young businesses and owners with credit score a little under 600. Once you apply, they’ll give you a decision with a day on loans from $5,000 to $600. Their interest rates are higher than most, but they work well with new businesses.

QuarterSpot

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They’re similar to Snapcap in most ways except their loans cap out at around $200,000, and your business must be at least a year old. They offer interest rates from roughly 20 to 48 percent annually on most types of business loans. They’ll let you know within one business day if you qualify and the money is usually in your hands the same day. Repayment plans range from nine to 18 months as well.

LendingClub

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They may be one of the better lenders because they guarantee your interest rate is locked in and the rates start at 7.77 percent. However, your business must be at least two years old, and you'll need to maintain a credit score of at least 620 to qualify for most of their loans. They offer loans up to $300,000 with no repayment fees or penalties which is bonus perk.

Fundation​

Homebuyer

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They work by giving you other lender’s money to work with, but most lenders operate this way. Their interest rates start at about eight percent, and they'll loan you up to $500,000. Your business must be at least a year old, and you'll need a nearly perfect credit score for their larger loans. If approved, they'll let you know within a day or two, and the money is usually in your hands the same day.

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They offer a line of credit up to $250,000 with up to 12 months to repay it. However, their interest rates start pretty high at around 20 percent. There's no formal credit check, and you usually get an answer the day you apply. They work with businesses that are at least a year old but prefer more established companies and borrowers.

Your Borrower’s Guide To Choosing A Lender And Short-Term Loan

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The end result of our research is a list of lenders with good reputations that offer short-term business loans and credit. You need to examine your business, sales, and future needs before considering any of these options to avoid making mistakes and wasting money. Decide what type of loan you need before choosing a lender, and you should be in good shape.

If your personal or business credit score is a little low, think 500 to 550, then PayPal, OnDeck, and Credibly will probably be your best options. In cases where you can show a high cash-flow stream to guarantee repayment, they usually skip formally checking your credit score. However, since they don’t technically report or check your credit, they aren’t good options for boosting credit scores.

If you need a jumbo loan of over $300,000, the best options are Fundation, Funding Circle, Snapcap, and OnDeck. However, Funding Circle and OnDeck offer the best interest rates but require your business to be at least a year or two old to qualify. Again, you need to make some decisions and take a hard look at what you need a loan for and how you can quickly repay it before choosing a lender.

The Pros And Cons Of Short-Term Business Loans

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Short-term business loans offer a few benefits, but most of them come with any type of loan. Possibly the best benefits to a short-term business loan are you get funded fast, and proper credit isn't always necessary. Another advantage is that younger businesses don’t often have issues securing a short-term loan if they have at least a modest revenue stream.

The cons of using a short-term business loan may seem scary at first, but they may also be your only option if your business is young or your credit scores are low. You'll pay a higher interest rate with most short-term loan options, and the payments will be higher. Payments can easily reach $8,000 a month on large loans without considering interest.

That said, a short-term business loan may end up as your only option under some circumstances. Do the math, make budget cuts, find wasteful spending, and make sure you can afford it. If you’re seeking a loan to cover a cash-flow gap, will your business recover? Cash-flow gaps may be indicators that your business is no longer viable, or your product is failing to impress your customers.

Look at every angle and don't make decisions based on your dreams to own a specific business or in desperation. Make decisions based on past sales, future predictions, market studies, and math. Use lots of math then do it all over again. There’s no sense in digging yourself into a significant financial hole if you can prevent it or find another way.

Look into merchant cash advances and lines of credit first and see if those options will suit your needs. Invoice financing is one of the short-term business loans that many lenders avoid, but it may be the perfect solution for your business if you have a lot of slow paying customers. A regular term loan should be our last option unless you plan to use the loan to expand your business or buy expensive equipment.

Some Final Notes

Prepare yourself and your business before you apply for any loan. You’ll almost always need to prove your income potential with bank statements or personal tax returns. Check your credit score and check the credit score for your business to see where you need to make improvements. Do all the math and make sure the loan repayment plan won’t affect your ability to operate the business.

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