Banks are generally known more for mortgage, car, and commercial loans than short-term loans. That said, some banks have started to compete with online lenders by offering their own versions of short-term loans. For the most part, these seem to be small-value loans aimed more at individuals than businesses, but there may be exceptions.
Generally speaking, you can expect bank loans to have better rates than online lenders, but more involved applications and higher lending standards.
This one may come as a surprise, but card processing services like PayPal, Square, and Stripe all offer their customers short-term loans. These loans are a little bit different than typical short-term business loans in that they generally don’t have definitive term lengths, nor do they have fixed payments. Instead, your payment processor will collect a percentage of your daily sales that pass through their system until you’ve paid off your loan.
If this sounds a bit like a merchant cash advance, you’re not off base. There’s a lot of overlap between short-term loans and merchant cash advances, but at the end of the day, these services are classified as loans, not advances.
Finally, that brings us to the task of successfully applying for a short-term business loan. While every lender differs a little on the exact qualifications they’re looking for, there are some general things you can do to maximize your chances of being approved.
Check Your Cash Flow
Short-term loans are sometimes called “cash flow loans” for a reason – short-term lenders are typically more interested in your daily cash flow than in your credit score or your business profitability. As such, these loans are generally suited to businesses that have strong, consistent daily cash flow, such as retail stores, restaurants, and some service businesses. If your business has inconsistent or poor cash flow, chances are you are not a good candidate for a short-term loan.
Have The Right Documentation
Your application will go faster and more smoothly if you have the necessary information handy in advance. This includes things like personal identification, 3-6 months of bank records, and corroborating documents to show that you are, in fact, the owner of your business.
Have Decent Credit
You may be looking at short-term loans in part because you don’t have great credit, so you may be surprised to see this on this list. While your credit score matters less for short-term loans, you’ll still get better results and terms the higher your credit score is. So long as your credit score is over 500, you should qualify for something, however.
Be In Business For At Least 3 Months
This is online payday loans Yellow Springs Ohio another area where short-term loans tend to be lenient. While many bank loans will want you to have been in business for over 3 years, you can qualify for a short-term loan within a few months. That said, you still have to show you can keep the lights on for at least a little while.
Clear Any Outstanding Debts
Most lenders don’t want to be in line behind a lot of other lenders to collect on their debt should a borrower default. Not only that, but lenders will generally consider your debt-to-income ratio when evaluating your application. The lower the number, the less of a risk you’ll look like as a borrower.
- You don’t have specific collateral: Most short-term lenders will require a personal guarantee and a blanket lien but don’t require specific collateral (like equipment or real estate).
The quality of online lenders ranges from excellent to a smidge above organized crime, so make sure to do your due diligence before you sign anything you might regret. We’ve done a lot of the heavy lifting for you at Merchant Maverick, so feel free to start with some of our favorite lenders.