Picture this: You run a busy clothing store and your only cash register just broke. Or the holiday season is coming up, and you need to hire extra workers. But you don’t have the cash to fix the register or hire the workers. In both cases, a short-term business loan can help. You get money you need now and, with the profits you make, repay it over a short period of time.
Short-term business loans typically come in small amounts ($5,000 to $250,000), carry repayment terms of a few months to a year or two, have looser qualifications and can provide fast cash at a much-needed time. They can be a solid option for handling an unexpected expense, financing a small expansion or managing cash flow gaps. Short-term business loans, however, generally have high borrowing costs — something to bear in mind when you’re shopping around.
JUMP TO RECOMMENDATIONS, ADVICE:
- If you’re looking to expand, have 500+ credit score and $100,000+ annual revenue
- If you’re a newer business and have a 600+ credit score and $25,000+ annual revenue
- If you need help managing cash flow, have poor credit and $50,000+ annual revenue
- If you need to finance inventory purchases, have 600+ credit score and $150,000+ annual revenue
- Pitfalls of short-term business loans
In contrast, long-term business loans are typically larger ($250,000 to $1 million or more) and have a repayment period of five to 15 years or longer, making them better suited to a real estate purchase, a business acquisition or refinancing debt.
OnDeck offers the best short-term business loan if:
- You have a credit score of 500 or higher
- Your business makes at least $100,000 in annual revenue
- You need money for a short-term expansion
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| Personal credit score | At least one owner with 500 or higher for term loans and a majority owner with 600 or higher for lines of credit | A personal credit score over 600 |
| Time in business | At least 12 months | Median of 7 years |
| Annual revenue | $100,000 or more in the last year for term loans and $200,000 or more for lines of credit | Median of $600,000 |
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OnDeck is a good option for a small-business owners who need fast cash for a small expansion, such as hiring employees. The lender provides short-term business loans repaid daily or weekly over three to 36 months. The online application can be completed in as little as 10 minutes, with funding arriving as soon as 24 hours. To apply, borrowers need to supply OnDeck with a business tax ID number, Social Security number, a driver’s license number, and credit card and bank statements.
ONDECK LENDING TERMS:
- APR: 9% to 98%
- Term loan amount: $5,000 to $500,000
- Term loan duration: 3 to 36 months
Besides meeting the company’s minimum qualifications, your business must not be on the company’s restricted industries list, and you can’t have had any bankruptcies in the last two years.
StreetShares offers the best short-term business loan if:
- You have a credit score of 600 or higher
- Your company earns $25,000 or more in annual revenue
- You need money for a short-term expansion
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| Personal credit score | 600 | 705 |
| Time in business | 1 year* | 4 1/2 years |
| Annual revenue | $25,000 | $700,000 to $800,000 |
| *If you make more than $100,000 in annual revenue, the required time in business drops to six months. | ||
StreetShares is good option if your business needs a loan for a short-term expansion or for working capital, but you don’t have much of a business history. The company offers term loans up to $100,000 repaid over a period of three to 36 months. You only need one year in business to qualify.
Businesses can qualify for a loan amount of up to 20% of annual business revenue, so a business with $100,000 annual revenue can qualify for up to $20,000 in financing. The application process should only take up to 10 minutes, with funding in three to five business days. StreetShares does not provide loans to businesses in North Dakota or South Dakota.
STREETSHARES LENDING TERMS:
- APR: 8% to 40%
- Term loan amount: $2,000 to $100,000
- Term loan duration: 3, 6, 12, 18 or 36 months
Besides meeting the minimum qualifications, borrowers also cannot have had any bankruptcies in the past three years, and no current tax liens or collections. To apply, you’ll need to provide basic information about yourself and your business, including your six most recent business bank statements and personal and business federal tax returns.
Kabbage offers the best short-term business loan if:
- Your personal credit is poor
- Your company earns $50,000 or more in annual revenue
- You need money to manage cash flow gaps
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qualifications |
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| Personal credit score | N/A | N/A |
| Time in business | 1 year | About 2 to 5 years |
| Annual revenue | $60,000 | About $100,000 to $10 million |
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With Kabbage’s line of credit, you borrow only the money you need and pay fees just on the money borrowed — flexibility that makes it a better option for managing cash flow than for a larger expense, such as an expansion. Be aware that each time you borrow against the line of credit, Kabbage generates a new six- or 12-month term loan with its own fee structure.
It’s also fairly easy to qualify. Although Kabbage does check your credit score, it doesn’t weigh your score as heavily as other factors, such as your average monthly revenue. The application doesn’t require any paperwork, and you can get access to cash once approved, which can take anywhere from a few minutes to several days at most.
KABBAGE LENDING TERMS:
- APR: 32% to 108%
- Line of credit amount: $2,000 to $100,000
- Line of credit duration: 6 or 12 months
Dealstruck offers the best short-term business loan if:
- You have a credit score of 600 or higher
- Your business is profitable and earns at least $150,000 in annual revenue
- You want to finance recurring inventory purchases
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qualifications |
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| Personal credit score | 600 | 660 to 700 |
| Time in business | 1 year | About 5 years |
| Annual revenue | $150,000 | About $1 million to $2 million |
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Dealstruck offers three main short-term financing products, including an inventory line of credit, which lets you finance 100% of your inventory purchases up to $500,000.
Borrowers can apply to Dealstruck online in 10 minutes and get funded in four to 20 days; the average loan is funded in 10 days. Besides meeting the minimum qualifications, you must sign a personal guarantee (a written agreement that pledges your personal assets to repay the loan if your business fails). A lien on your business assets also is required. To find out how to apply for a Dealstruck loan, read our step-by-step guide.
DEALSTRUCK LENDING TERMS:
- APR: 11% to 22% + prime rate
- Line of credit amount: Up to $500,000
- Line of credit duration: 6 months per draw
Besides meeting the minimum qualifications, your business must be profitable to qualify for funding. For the Dealstruck application, be ready to submit three months of business banking statements, two years of business tax returns and one year of personal tax returns.
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The pitfalls of short-term business loans
Of course, there are a few disadvantages to short-term business loans that small-business owners should keep in mind:
Higher cost: Short-term business loans typically carry a higher annual percentage rate than long-term loans, which refers to the total annual cost of borrowing with all fees and interest included. That’s due to a shorter repayment length, faster speed of funding, looser qualifications than long-term loans (lower credit score and revenue requirements) and the fact that many are unsecured business loans, which don’t require collateral.
More frequent repayments: Lenders may require you to repay the loan daily or weekly as opposed to monthly, which results in smaller, but more frequent repayments. This can be an issue for businesses that have uneven sales or those that don’t always hold much cash in a bank account. You’ll have to make sure you have enough money in a bank account to make the payments at all times, or you’ll risk incurring fees or default on the loan.
Risk of debt trap: The speed and ease of short-term business loans can become addictive. Instead of repaying the debt in full, business owners may be enticed to refinance and roll over the debt into a new loan. But this can result in a debt trap: continuous refinancing just to keep up with payments. This is a common issue with merchant cash advances, a costly form of short-term financing that can carry an APR over 300%. If you have several high-interest small-business loans, business debt consolidation may be the solution you need.
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Short-term business loans: Next steps
Short-term business loans can get you the cash you need to overcome cash flow gaps, handle emergencies and unexpected expenses, or finance a small expansion. As you shop for loans, be aware that they’re not all created equal. Carefully compare the cost of each loan as represented by the APR, taking into account the length of the repayment term and whether you can handle the payments.
Find and compare small-business loans
NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans tool. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post has been updated. It was originally published Jan. 12, 2016.
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