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Key takeaways
- Short-term business loans are a quick way to get funds for your business, with repayment terms typically lasting between three to 18 months.
- Short-terms are often offered by online lenders, who can process applications and disburse funds faster than most traditional lenders.
- Common reasons for taking out a short-term small business loan include emergency expenses, covering seasonal cash flow dips and taking advantage of business opportunities.
According to the Small Business Index Q1 2025 report, revenue is a top concern for 35 percent of small businesses. If you need cash for an emergency or to take advantage of an exciting new business venture but don’t want to be in debt for years to come, a short-term business loan may be the answer.
Online lenders can provide funds within a day or two, while traditional lenders may take a week or more. With repayment terms typically 24 months or less, a short-term loan allows you to address immediate needs while minimizing the long-term financial burden, helping your business stay agile and focused on growth.
Understanding the ins and outs of this type of financing can help you find the best short-term business loan to meet your small business needs.
What are short-term business loans?
Short-term small business loans are a financial resource for companies that need extra cash. These loans have shorter terms than most business loans, which means you’ll get out of debt sooner. However, that setup also results in high daily, weekly or monthly payments, and these loans also tend to have high interest rates.
A quick application process combined with easier requirements than long-term loans makes this financial product compelling for many business owners. Some businesses that can’t get approved for long-term loans may have better luck with short-term business loans.
How does a short-term business loan work?
Short-term small business loans work a lot like other types of loans. The lender gives you a lump sum of money, usually in exchange for some sort of business collateral (unless you take out an unsecured loan, which would usually translate to a higher interest rate).
Like other loans, you repay what you borrow in the schedule laid out by the terms of your loan. Unlike other loans, that timeline is brief. Usually, short-term business loans have terms of 18 months or less, though some lenders offer 24 month repayment terms. Depending on the type of short-term business loan and lender, you may have to make daily or weekly repayments to repay in that short time.
Online lenders primarily offer these loans. They can usually process your application quickly (within 24 hours in some cases). Once approved, money usually hits your account the same day. Be prepared for higher short-term business loan interest rates in exchange for that expediency, as many short-term loans use factor rates instead of interest rates.
Short-term business loans vs. long-term business loans
Long-term business loans come with longer repayment terms, usually anywhere from seven to 25 years. Rates are usually much lower compared to short-term business loans.
That longer repayment schedule can help to facilitate a larger loan, plus it can mean making less frequent payments and keeping those monthly payments down. With a short-term loan, you usually make payments weekly or daily, with interest expressed as a factor rate. This can make the true cost of a short-term loan more expensive than a longer-term loan.
Both short-term and long-term business loans have options that allow you to use the funds for a variety of uses. Make sure you check your loan agreement to understand exactly how you can use a short-term loan.
Fees and credit score consequences
As with most business loans, short-term small business loans often come with administration/origination fees and consequences if you default. Your credit score will also take a huge hit.
Reasons to take out a short-term business loan
The reasons you might consider a short-term business loan are probably as unique as your business itself. Here are a few common use cases for short-term business loans:
- Dealing with emergency expenses. Maybe a key piece of equipment just broke, or a natural disaster impacted your office. To get the money you need to handle the unexpected, fast short-term business loans can come to the rescue.
- Covering seasonal cash flow dips. Does your business have boom seasons followed by leaner times? Short-term small business loans might be worth exploring if you need to weather a seasonal slump.
- Seizing a business opportunity. If bringing on headcount could help you service an exciting new client or making a big inventory purchase now could help you land a sizable discount, you might need a lump sum of liquid capital your business doesn’t have. With a short-term loan, you can get that cash in hand to lean into the growth opportunity.
- Getting financing with bad credit. Because this type of financing usually comes with looser eligibility requirements, it can be an option for a bad credit business loan.
Requirements for a short-term business loan
Short-term business loan requirements vary by lender, but in general, you need the following most recent documents:
- Business bank and income statements
- Business licenses or permits
- Personal and business tax returns
- Revenue statements
- Up-to-date business plan
There is also usually time in business requirements, with most short-term lenders requiring at least six months to two years or more in business. You’ll also need to prove annual revenue of at least $50,000 to qualify.
Costs vary from lender to lender. Short-term loans typically cost more than long-term loans, with interest rates ranging from 7.49 percent to 30 percent or more. Fees like application, origination, processing or underwriting fees can add to the total cost. iBusiness Funding, for instance, charges up to 10.49 percent in origination fees. Also, lenders usually tack on late fees if you miss a payment. On the flip side, some lenders like National Funding offer early repayment discounts if you can repay your loan faster.
Bottom line
Short-term business loans can offer business owners funding to bridge a brief gap in their cash flow. You’ll generally get the money fast, but you’ll also need to repay it quickly. Evaluate your cash flow and make sure you can keep up with the rapid repayment terms that come with these types of loans.
If the repayment periods for short-term loans are too quick for you, review the alternatives to see what other options are available. You can also use a business loan calculator to determine what repayment terms best fit your budget.
Frequently asked questions
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