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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? There’s 3 main categories of small business loans, each with their own pros and cons. We’ve decided to help you decide what’s right for your current situation.

Short Term Business Loans: A comparison Vs Medium Term Business Loans and Long Term Business Loans.

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 business term loan often within 24 hours (usually short term business loans in that short of a time period) and with little to no credit requirement.

The only question is what type of business term loan product is best for you based on your specific needs: a short term business loans, medium term business loans, or long term business loans.

So, below we’ll be breaking down the difference between each of the 3 main types of term business loans as well as the main loan products within each category, including:

  • How they work
  • Terms
  • Credit and additional qualification 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 term loan will best fit your need for capital.

Let’s dive in…

Term business loans: A side-by-side comparison

Term business loans split up into 3 primary categories, each based on how long it will take to repay the loan:

  • Short-term business loans: Up to 2 years.
  • Medium-term business loans: Between 2-5 year loan term.
  • Long-term business loans: 5+ year loan term.

Within those 3 major buckets, there are many different types of business loan. They typically separate as follows:

  • Short-term loans: Up to 2 years
    • Merchant cash advance
    • Invoice factoring
    • Unsecured business loan (short-medium)
    • Business line of credit (short-medium)
  • Medium-term business loans: 2-5 years
    • Asset-based lending
    • Term loans
    • Equipment financing (medium-long)
  • Long-term business loans: 5+ years
    • SBA loans
    • Traditional bank loans
    • Equity funding

Keep in mind that some types of business financing don’t fall strictly into one bucket but take up 2 or all 3. The repayment period for equipment financing, for example, can be 1 year.

However, generally, equipment financing is between a 2-5 year repayment term.

We’ve specified which loan types have a wider term range above, but keep in mind as you continue reading that this breakdown is less a rule and more a helpful framework for understanding the typical repayment term associated with each type of financing.

Which loan type is best for you?

Each type of term loan, whether short-term or medium-term, functions 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 4 different factors:

  • Credit score & history
  • How much funding and how often
  • How fast you want to pay it off (short-term, medium-term, long-term)
  • And how fast you need it

Now, let’s breakdown each of the primary types of short-term, medium-term, and long-term business loans:

Short-term business loans

Below are the 4 major types of short-term business financing:

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 sum 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.Apply Now

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.Apply Now

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.Apply Now

Best for business owners with outstanding receivables: Invoice factoring

Invoice factoring is possibly the most unique of 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.Apply Now

Medium-term business loans and lending options

Below are several of the most common types of medium-term business loans:

Best for businesses with low or seasonal cash flow: 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 medium-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 in long-term projects where cash is needed to complete the project before getting paid.
  • Equipment financing: Equipment financing, or equipment factoring, allows you to get brand new equipment with the equipment itself serving as collateral. You then repay the lender for the advance.

Equipment factoring is one of the more common and useful types of asset-based financing, and its terms can vary a bit, so let’s take a minute to highlight it:

Best for businesses who need funding to replace or upgrade equipment: Equipment factoring

If a critical piece of equipment breaks, it could mean the difference between being open for business… or closed indefinitely.

On the flip side, if your business is growing, you might not have the cash on hand to purchase new, expensive equipment– and that would hinder growth.

Those are both two of the primary reasons that equipment factoring is so useful. In both cases, you’re able to get the brand new equipment you need within as little as 1 week and keep business moving forward without a hitch.

With equipment factoring, you get cash for a specified equipment purchase with that equipment being used as the collateral itself.

You then pay that loan back with interest, typically with terms between 2-5 years. Though, as we mentioned, this can sometimes be a short-term loan– repayment in the 1-2-year range– in rare cases.

Equipment factoring at a glance:

  • Loan amount: Based on asset’s value
  • Repayment terms: 1 – 5 years
  • 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 equipment financing.Apply Now

Best for those who need a quick infusion of cash: Term loans

Not to be confused with the categorizing of the various business loan types based on term length (as we’ve done throughout this page), this refers to a specific loan product often used to fill an immediate short-term need for capital.

These types of loans can be structured as either short-term business loans or medium-term and have a predetermined payment schedule.

Because this is a very general type of business loan, it’s important to check with the lending institution you’re working with as language can vary from one to another regarding the loan terms and other specifics.

Similar to unsecured business loans in that they’re a lump sum of cash, term loans may be even more like traditional bank loans. That’s because they typically require some kind of hard collateral such as liquid savings or property.

The upside to this is that these loans tend to be very quick and easy to acquire and you can use the funds for virtually any business need.

Term business loans at a glance:

  • Loan amount: Varies, funding over $75,000 may require additional documentation
  • Repayment terms: 2 – 5 years
  • Minimum credit score: 680+
  • Additional minimum requirements: $500,000 annual revenue, 2 years in business
  • Speed: Approval in 24-48 hours, funding in as little as 72 hours

See how much you can be approved for with a loan term.Apply Now

Long-term business financing

Long-term business financing tends to be in a category of their own.

None of the medium or short-term business loans we’ve mentioned thus far usually have terms above 5 years, so those loans and other types of business financing that do are unique among business loan offerings for more than one reason.

The most common types of long-term business loans include:

SBA loans

SBA loans are loans offered by the Small Business Association in partnership with a lender.

What makes SBA loans unique is that the SBA guarantees their loans with the lenders it works with.

As a result, lenders are able to pass on lower rates and terms.

SBA loans can have shorter terms, as short as 1 year in some cases. However, they tend to have much longer repayment terms depending on the loan product, lender, and borrower’s qualifications.

Learn more about how SBA loans work.

Traditional banks loans

The most well-known of business loan types, you can still walk down to your local bank branch and obtain a loan. However, although bank loans are insured by the FDIC, they’re not as attractive as they once were.

Since the financial crisis, banks have become much stricter about who they approve and what they require from those that apply.

In addition to this, compared to most private lenders, banks move much slower and require a ton more paperwork. It can take 1+ months just for approval in most cases.

Equity funding

The final type of long-term business funding is equity funding. With equity funding, others invest in your business through a variety of means.

Typically, a firm will hold an investor’s funds for up to 10 years in a variety of stocks (companies of your choice), during which case depending on the type of funding you’ll then either repay the loan (if it’s a crowdfunded loan, for instance) or do nothing if it’s an investment.

Learn more about how equity funding works.

What can you use a short-term or medium-term loan to pay for?

So, what can you use a medium or short-term business loan for? And does each type of loan have a different use?

Some types of business loans have a very niche use. For instance, equipment factoring can only be used to purchase equipment that the business will use.

However, in general, most types of business loans, whether short-term or medium-term, can be used for virtually anything.

Here are a few ways you can use the working capital you get from a short-term or medium-term business loan:

  • New hires
  • Employee training
  • Inventory purchases
  • Expanding to additional locations
  • Equipment purchases and upgrades
  • Payroll
  • Catching up on outstanding expenses
  • And much more

And this is just a short list of the types of things you can pay for. Unsure of which type of short or medium-term financing option is best based on what you need funds for? Use the chat feature to get in touch and we’ll be happy to help give you a better idea.

What do you need to apply for a short or medium-term business loan?

The short and medium-term business loan categories include a wide variety of loan types, so application requirements do vary a bit between each.

However, paperwork is minimal and qualification requirements are the same across loan products for the most part.

Here are the basics you’ll need to apply for most types of business loans:

  • Short application
  • 4 Months of your most recent bank statements
  • 4 Months of your most recent credit card processing statements
  • Driver’s license
  • Voided business check

And here are a few types of documents that may be requested if additional information is needed:

  • Most recent business tax return
  • Profit and loss statement
  • Balance sheet
  • Business licenses
  • Debt schedule
  • Proof of ownership

While more may not be required than the basic documents listed above, it’s best to get everything together that you have just in case. That way, you can expedite the approval process, which will get you your funds quicker.

Which short or medium-term business loan is best for you?

Each short-term and medium-term business loan is somewhat 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.

Not sure which type of term loan best fits your needs? Take 2 minutes to fill out our short application and we’ll help you figure out the funding solution that’s ideal for you.