Sometimes a little bit of financing can make all the difference to a small business. A computer crashes and you don’t make enough revenue to quite cover the cost. Bills are due and your business only has outstanding invoices, not cold hard cash. The short-term loan that your business can get for a quick fix will depend on factors such as your annual revenue and credit score.
We update our data regularly, but information can change between updates. Confirm details with the provider you’re interested in before making a decision.
There’s no one way that short-term business loans work. That’s because a short-term loan can be any type of business financing: Fixed-term loans, invoice factoring or financing and payroll funding all involve different ways of borrowing and paying back funds.
What short-term loans have in common is that they typically come in smaller amounts, have shorter loan terms and more require frequent payments than your standard business loan. With most short-term business loans, you can expect to make daily or weekly repayments and pay it off in a matter of months or up to two years. Interest rates and fees are also typically higher than long-term business loans but they have lower personal credit requirements.
Often referred to as business payday loans, these are generally meant for emergencies to fix quick cashflow problems. That’s because high interest rates and fees make them unaffordable to cover large expenses — and you likely won’t be able to qualify for a large amount of funds anyway.
5 types of short-term business loans
There’s no one-size-fits-all short-term business loan. The loan type that works best for you depends on your business’s immediate needs and how it operates. Have a lot of outstanding invoices? Invoice factoring might be what you’re looking for. Just need to cover a small one-time expense? A business term loan might be best.
Here are five common types of short-term business loans to consider and how they compare:
Business term loan
Any business with a one-time expense
$500 to $500,000
As fast as one day
Starting at 8% APR
6+ months in business
$10,000+ monthly revenue
Invoice factoring
Businesses that rely on accounts receivable and don’t care about keeping relationship with customers
80% to 95% of the value of your invoices
As fast as one day
Factor fee between 0.2% and 5% each week your client takes to pay their invoice
6+ months in business
annual revenue varies
Invoice financing
Businesses that rely on accounts receivable and want to keep their relationship with customers
70% to 95% of the value of your invoices
As fast as one day
Processing fee around 3% plus a factor fee from 1% to 5% each week your client takes to pay their invoice
6+ months in business
annual revenue varies
Line of credit
Seasonal businesses
$2,000 to $100,000+
As fast as one day
APR based on credit history
1+ years in business
annual revenue varies
Merchant cash advance
Businesses that rely on credit or debit card sales
$2,000 to $100,000+
As fast as one week
Factor rates vary
1+ years in business
$10,000+ monthly revenue
*Information in this table is meant to be used for estimates only. Contact your lender or provider for details for before applying.
Business term loan
Business term loans come in one lump sum that you pay back over a set period of time with interest and fees. Loans with a term less than 18 months or two years are considered short-term and often come with daily or weekly repayments, instead of monthly repayments.
Invoice factoring
Invoice factoring involves selling your business’s unpaid invoices to a third party for a percentage of their value. Your lender gives your business a smaller percentage of the invoices upfront after deducting a fee. Once your customers pay off the invoices, the lender gives your business the remaining amount.
You can either sign up for invoice factoring monthly to make sure all of your business expenses are covered or use invoice factoring to cover a one-time payment. You can also either factor all of your business’s invoices or select which invoices to factor.
Invoice financing
Similar to invoice factoring, invoice financing gives you an advance on your invoices. It’s essentially a loan backed by your company’s invoices. You’ll get a percentage of your invoice’s value upfront, which you pay back with interest and fees. Once the client pays you, you repay your lender.
Line of credit
Lines of credit give your business access to a certain amount of funds at the last minute, similar to a credit card. You only have to repay what you borrow and your loan term typically starts when you make your first withdrawal. Short-term lines of credit typically come with terms that range from six to 12 months with weekly or even monthly repayments.
Merchant cash advance
Merchant cash advances are quick lump-sum advances on your business’s future sales. Your business can typically qualify for a certain percentage of its annual sales and pay it back with a percentage of your business’s daily sales or with fixed daily withdrawals from your business’s bank account.
Instead of getting an interest rate, you’ll get a factor rate, which determines how much you’re on the hook to pay back up front. Multiply your merchant cash advance by the factor rate and that’s how much you’ll pay.
How can a short-term loan benefit my business?
Covers gaps in cash flow. You need money to keep things running, but revenue has stopped coming in — for now. A short-term business loan can help pick up the slack to maintain overhead costs while you wait for things to go back to normal.
Gets you cash fast. Many short-term business loan providers can get you funds in as little as one business day after you submit your application.
Designed for emergencies. Your business’s van broke down days before a huge delivery or one of your restaurants’ ovens is on the fritz. A short-term business loan can give you just enough to cover those immediate repair costs so your business doesn’t lose even more money.
Doesn’t require good credit. Short-term lenders often accept less than perfect credit scores, meaning you don’t need to have a spotless personal financial past to qualify for this business loan.
Minimal paperwork. Not only is the turnaround time quick, the amount of time and effort needed for the application is generally less than your typical business loan, letting you get back to work quickly.
What to watch out for
Can be expensive. Short-term loans come with higher interest rates and fees than other types of loans, especially if they come with lax credit requirements.
May have weekly or daily repayments. If your business is just starting out and doesn’t make money every day or relies on large lump-sum payments each month, it could have trouble paying back a short-term business loan.
Can be a debt trap. With any short-term loan, there’s a risk of borrowers taking out more short-term loans to pay off the last loan. With high interest rates, it’s not difficult to spiral into a cycle of debt that could ruin your credit and put you out of business.
Not good for large expenses. The larger the loan, the higher your repayments will be — and the more interest you’ll pay. With such frequent repayments, a large short-term loan could be the recipe for default and a ruined business.
How do short-term business loans compare to other loan types?
Short-term loans
As fast as one business day
Less than 1 year
Lines of credit
As fast as one business day
6 months to 5 years
Long-term loans
As fast as two business days
1–5 years
Merchant cash advance
About one week
Varies by sales amount
Personal loans for business
As fast as one business day
3–5 years
Bottom line
Short-term business loans could help your business in a pinch. Their fast turnaround time and relatively effortless applications mean you can get a small amount of funds fast when you need it. But your business will pay for that quick and easy application — they cost more than your typical business loan. You might want to treat them as a last resort.
Curious about how other types of business financing work? Check out our business loans guide, where we break things down and compare lenders.
Frequently asked questions
While most lenders require businesses to be up and running for at least a year or two, there are some short- and long-term options for younger companies.
Short-term business loan providers typically ask you to submit the following documents with your applications:
Province-issued ID
A void cheque from your business account
Bank statements
Last year’s tax return for you or your business
Proof of ownership
There are two main reasons lenders charge higher rates and fees on short-term loans. First, short-term loans typically require less paperwork and don’t have as strict credit guidelines, making them more of a risk to the lender. Second, a shorter term and smaller amount means that the lender has less time to collect interest. Without raising the rate, lending short-term might not be worth it.
Anna Serio is a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY.
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