Short-term small business loans enable you to raise working capital to manage a temporary financial issue. If you have a seasonal business, you may need a short-term loan to level off your cash flow. If you’re waiting for customers to pay your invoices, a short-term loan can help you meet payroll and cover your own bills until payment is made. Or you may need to make an investment in your own business to qualify for bigger opportunities. There are a lot of reasons to seek a short-term infusion of funds.
But here’s something you need to know about banks: they don’t like risks, and they like to make money. That’s probably not a big surprise. What you may not know is that banks figure almost all businesses are a risk, because they don’t have the same bail-out options as a big business does.
And small business owners do something else that really bothers banks. The smaller the business, they more likely the owner ask for a small loan. You’d figure that’s sensible – why over-borrow? But since the amount of work associated with lending funds is the same no matter what amount is borrowed; banks would prefer to lend huge amounts to big businesses. It’s simpler, it’s safer, and it’s much more profitable.
Short-term loans are the exception. They are often approved for smaller amounts than a bank would typically prefer to lend. Since a short-term loan must be repaid within a year – and often within 3-4 months- the risk is less. The bank doesn’t have to figure out what your financial status is likely to be two or three years down the road, they can make a solid judgement call based on your current revenues, the economy and other factors.
Qualifying for a Short-Term Loan
Your lender will prefer you to have a good credit record. You should be able to document a predictable payment history for other loans, including lines of credit with your suppliers if applicable. Your business should have a provable, solid cash flow history for the last 3-5 years.
With a credit score of less than 720, you will definitely need collateral to qualify for a short-term loan from a bank. Those with excellent credit history, or an established relationship with a banker at your credit union or local bank, may qualify for an unsecured loan.
Bad credit or no credit? You’ll likely find short-term loans – any loans, really – from a bank difficult to access. You may qualify if you can deposit the amount of the requested loan in a secured savings account. It sounds counterintuitive – if you had the money, why would you need a loan? – but you may be able to get a friend or family member to loan you the necessary sum if they know it will just be security for the short-term loan. And if you do have the money to secure a loan, it’s a great way to build your credit history.
Short-Term Loan Interest Rates
Short-term loan rates are usually based on the prime interest rate, along with a premium based on the risk level a bank associates with your business. The better your credit history, the lower the premium. Know the current prime interest rate when you talk to the bank’s loan officer. If you have a good credit history, you may be able to negotiate your loan rate.
Short-term loan alternatives
If you don’t qualify for a short-term loan from a bank, don’t worry - you still have options. Alternative funders are happy to work with businesses that have been open for three months or more and have revenues as low as $5000 a month, and funds are typically available within 72 hours. Business owners don’t need to have great credit scores to qualify for funding either.
One easy way to get started with alternative lenders is by getting pre-approved by One Park Financial, which then gives you access to a funding expert who can discuss your business needs and options to determine what funding types best meet your needs.
One Park Financial works to help owners of small and mid-sized women-owned businesses access the funding that meets their needs. Established in 2010 and founded by entrepreneurs, One Park Financial understands the challenges associated with small business loans. Visit oneparkfinancial.com or call 855.218.8819 and connect with a funding expert today to discover the options that make sense for you and your business.