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Short-Term Business Loans: The Best Options Reviewed

Ever found yourself in need of cash to pay off a vendor, bridge the gap between seasons, or pay for materials before a big job?

If you thought you were out of luck, you aren’t alone. Most business owners still think that banks control the lending market.

If you don’t have a 680+ credit score (and 1 month to wait to get approved, let alone funded), you were out of luck.

But that’s not the case anymore.

Now, you can be approved and funded for a short-term business loan often within 24 hours and with little to no credit requirement.

The only question is what type of short-term business loan product is best for you based on your specific needs.

So, below we’ll be breaking down the 5 main types of short-term business loans, including:

  • How they work
  • Terms
  • Credit and additional requirements, and
  • Approval and funding speed

With the above information in hand, you’ll be able to make an informed decision about which type of short-term loan will best fit your need for capital.

Let’s dive in…

Short-term business loans: A side-by-side comparison

There are 5 primary types of short term business loans.

They are:

  1. Unsecured business loans
  2. Business lines of credit
  3. Merchant cash advances, and
  4. Invoice factoring
  5. Asset Based Loans

Each function slightly differently from one another, some having no minimum credit requirement, others with high limits, and all with blazing fast approval and funding time frames when you compare them to traditional bank loans.

Which loan type is best for you will depend primarily on 3 different factors:

  • Credit score & history
  • How much funding and how often
  • And how fast you need it

Here’s a breakdown of the 5 primary types of short-term loans:

Best for quick funding and limited paperwork: Unsecured business loan

Unsecured business loans are the closest to a traditional bank loan amount the 5 types of short-term business loans on this list.

That’s because an unsecured business loan is a lump sump you receive in exchange for a promise to pay back that amount at a specified interest rate.

That interest rate is typically higher than a traditional loan. However, that’s because unsecured business loans don’t require hard collateral such as cash savings or property like traditional loans do, so your risk is greatly reduced.

Unsecured business loans at a glance:

  • Loan amount: $5,000 – 5,000,000
  • Repayment terms: 3 – 24 months
  • Minimum credit score: 500
  • Additional minimum requirements: $100,000 annual revenue, 3 months in business
  • Speed: Approval in 24 hours, funding in 1 business day

See how much you can be approved for with an unsecured business loan.

Best for cash flow: Business line of credit

A business line of credit is unique from the other short-term loan products because it’s not a single lump sum.

Rather, a business line of credit is a consistent source of cash which you can tap into at any time, very much like a credit card.

The maximum loan amount and credit requirements are higher for business lines of credit.

However, the flexibility and peace of mind you get knowing you always have access to the capital you need to keep your business running smoothly– especially in case of seasonality or an industry such as construction where you have to purchase materials before you’re paid– is invaluable.

Business lines of credit at a glance:

  • Loan amount: $2,500 – 250,000
  • Repayment terms: 6 – 12-month revolving
  • Minimum credit score: 550
  • Additional minimum requirements: $50,000 annual revenue, 1 year in business
  • Speed: Approval in 30 minutes,  funds instantly

See how much you can be approved for with a business line of credit.

Best for business owners who accept credit cards: Merchant cash advance

A merchant cash advance (or MCA, split funding) works like a traditional loan on the front end. However, where it differs from traditional loans is primarily in how its repaid.

With a merchant cash advance, how much a lender will approve you for is based on your credit card transactions. The more revenue you generate through credit cards, the more you may be approved for.

Once you’ve been funded, that MCA is repaid by auto-deducting a small percentage of your daily credit card transactions.

What’s great about an MCA is because that amount is a percentage, it fluctuates with your business. When sales are down, that amount is lower. That makes it easier to stay consistent with repayment.  

Merchant cash advance at a glance:

  • Loan amount: $5,000 – 500,000
  • Repayment terms: 3 – 18 months
  • Minimum credit score: No minimum
  • Additional minimum requirements: $100,000 annual revenue, 6 months in business
  • Speed: Approval in 24 hours,  funding in 2 – 3 business days

See how much you can be approved for with a merchant cash advance.

Best for business owners with outstanding receivables: Invoice factoring

Invoice factoring is possibly the most unique of the short-term business loan products.

That’s because the lender is essentially purchasing your invoice at a discount.

The lender buys your invoice from you, typically for around 90% of the invoice amount, and they then act as the collector for that invoice, communicating directly with your customer to collect payment.

Invoice factoring is great for business owners who don’t like the idea of (or aren’t in the position of) taking on additional debt since you’re simply collecting on invoices you’re already owed by your customers.

Invoice factoring at a glance:

  • Loan amount: Up to 90% of invoice
  • Repayment terms: None, the lender acts as the collector for your customer’s invoice
  • Minimum credit score: No minimum
  • Additional minimum requirements: $100,000 annual revenue, 3 months in business
  • Speed: Approval in 24- 48 hours, funding in up to 1 week

See how much you can be approved for with invoice factoring.

Additional option: Asset-based lending

Asset-based lending is a broad term that includes several types of financing options with one thing in common: they’re secured by tangible (hard) or liquid assets. That amount you can borrow is also based on the same asset(s).

Those assets can be tangible such as property or equipment or liquid assets such as cash savings or accounts receivable. The loans can be structured as either a short-term loan or a line of credit.

There are three major types of asset-based lending:

  • PO financing: Purchase order financing can be highly useful for businesses who need to pay to produce product long before getting paid for it, making managing cash flow difficult. With PO financing, the lender pays your supplier for the goods and you then repay the lender directly.
  • Hard money: A hard money loan is a short-term “bridge loan” whose terms are based on the value of a commercial property as collateral. Hard money loans are typically used to bridge the gap on long-term projects where cash is needed to complete the project before getting paid.
  • Equipment financing: If a critical piece of equipment breaks, it could mean the difference between being open for business… or closed indefinitely. Equipment financing allows you to get brand new equipment with the equipment itself serving as collateral. You then repay the lender for the advance.

With every type of asset-based lending, you have the advantage of the loan being secured, so if you default on your loan you know it will be paid for.

In some cases, though, this can be seen as a negative. It all depends on what you want out of a short-term business loan. As we’ve covered in this guide, you have a diverse collection of short-term loan options.

See how much you can be approved for with asset-based lending.

Which short-term business loans are best for you?

Each short-term business loan is different from one another, each with its own unique benefits and trade-offs.

Whether you need something with no minimum credit requirement, that you can tap into on a regular basis, helps you avoid additional debt, or makes repayment flexible, there’s a solution that’s fit to your needs.