If you are a business owner who is looking to secure financing quickly, you are likely in need of small business loans. But the availability of various loan options in the market makes it difficult to understand which types of short-term loans are perfect for your business. Though short-term loans typically fund instantly, going by the name actually refers to how soon they are actually paid off, rather than their funding speed.
So with all the general information on the short-term loans, it’s time to dive deep into the details. Let us have a look at the best small business loans that every business owner should be aware of:
Merchant Cash Advances
It is not actually a loan, it is an advance. A merchant cash advance is when a lender purchases your business’s future credit card sales, so it essentially fulfills the same purpose as that of a short-term loan. It is often one of the most expensive types of short-term loans. Your credit card point of purchase technology is used to repay the merchant cash advances. To be eligible for a merchant cash advance, following are the minimum requirements
- At least 1 year of business
- Personal credit score of 500+
- A minimum annual revenue of $50,000
Business Line of Credit
The up next in our list is the business line of credit. This short-term loan option functions much like a business credit card i.e. you will receive a credit limit that you can use as required and then repay whatever you spend accordingly. This short-term funding option always deals in cash, whereas the business credit cards often charge you exorbitant fees for the cash advances. But funding to keep in your back pocket for a rainy day, the idea of a business line of credit is an ideal one. Following are the requirements of qualifying for a business line of credit:
- Minimum 6 months in business
- A minimum of $50,000 annual revenue.
Next on the list is invoice financing. This option provides a solution to a very specific financial conundrum- a cash flow restrained by the outstanding invoices. Through invoice financing, the lender will advance you a percentage, sometimes as high as 90% of your outstanding invoice’s value. Based on the number of weeks your invoice is outstanding on getting funded, your advance will accumulate interest at a low rate. Since the collateral is in the form of outstanding invoice, this kind of short-term loan is one of the most affordable and the easiest to get all of your short-term options. The qualifications required include:
- Minimum 6 months in business
- Minimum $50,000 revenue
Last, but certainly not the least; short-term loans are one of the most straightforward options of all your short-term loan options. Through this option, your business will receive a lump sum of cash, plus interest, and in accordance with a pre-determined payment schedule for a fixed time period. You will have to pay off your short-term loans much quicker than a traditional term loan. Loan size ranges from $2500- $250,000 with interest rates starting at 10%. Usually short-term loans have a repayment period of 3-18 months. Following are the conditions to qualify for a short-term loan:
- At least 1 year in business
- Personal credit score of >550
- Minimum annual revenue of $50,000
Though small business loans might seem like it will always require lots of paperwork and weeks of waiting time, most types of short-term loans can get your business funded within a week, if not a day.