Having access to working capital is a must in order for any company to flourish. But, business doesn’t always go as planned and sometimes we face unaffordable startup costs or a slump in business. If you’re in serious need for cash, a short-term business loan can be useful. This type of loan can cover your expenses without impacting your accounts payable.
Looking for tips to successfully apply for a short term loan? If so, we’ve got you covered! Here are the tips and tricks you need to know when applying for short term business funding.
Step 1: Research Short-Term Loans
There are dozens of different types of business loans available today. Before applying for this type of loan, be sure that it’s the best option for you. For example, a short-term loan may be the ideal solution if you’re looking to bridge a cash flow gap. Short-term loans are also ideal in situations when:
- You have to pay for emergency repairs
- There are short-term operational costs that need to be paid for
- You’re lacking cash flow now but expect it to pick up in the near future
After determining that a short-term loan fits your specific business needs, you can move forward in the process.
Step 2: Search for a Lender
Traditional lenders are often more conservative when it comes to lending, especially to small businesses. These lenders tend to offer short-term loans that must be paid off from 90 days to a year. However, these lenders tend to be stringent in deciding who qualifies. Most of these lenders are looking for highly qualified borrowers with ideal credit scores, a thorough business history, and solid working capital.
If you want to avoid the hassle of working with a traditional lender, consider alternate options such as a credit union, community bank, or even an online lender.
When searching for a lender, find one that offers transparent terms, flexible funds, and a simple application process. It’s also helpful to choose a lender that is trusted and reputable in the business industry. Take time to read online reviews and see what past borrowers have to say.
Step 3: Compare Qualifications
Lenders tend to have similar qualifications for short-term loans. First, your business must have been in business for at least a year. Lenders will also want to see an annual revenue of at least $50,000. Last, your personal and business credit score should be at least 525. Of course, not all lenders have the same requirements. Search around for a lender that offers requirements that your company meets. Without this research, you risk getting denied off the bat because you fall short of the loan eligibility requirements.
Step 4: Figure Out the Numbers
Before applying for a short term loan, you’ll want to know exactly how much money you need to borrow. Borrowing too much means more money paid towards interest while borrowing too little can create a whole new financial bind. Sit down and figure out the dollar to dollar amount of how much you need.
After you’ve determined how much you need, the next step is to figure out how much you can afford. While you may need $20k, are you able to pay that amount of money back in such a small time frame? Ensure that you not only get the funds you need but that you’re able to repay the loan within the set term.
Step 5: Gather Paperwork
While lenders can look at your credit score and history to get an idea of your debt ratio, payment history, and open accounts, more information is always needed. Before applying for a loan, lenders will want:
- Proof of ownership
- Driver’s license
- Bank statements
- Tax returns (personal and business)
- Voided business check
Once you’ve gathered all of the required financial and legal paperwork, you can finally apply for a short-term loan! If for some reason you are denied, wait a few months before applying again so that your credit score doesn’t take a huge hit.
Step 6: Apply!
Once you’ve found a lender, crunched numbers, and gathered all of the paperwork you need, the next (and final!) step is to apply for the loan. Most lenders are able to provide answers within two business days and money is typically available within a week. Be sure to make yourself available after applying in the event that the lender requires more information.
Short term loans can be risky, especially with the highly shortened loan term and high interest rates. But, if your company is in need of quick cash flow, a short term loan makes the most sense. This way you can receive the funding you need without interrupting business. What are some alternative ways that you have found for financing your business? Leave us a comment in the section below.