Almost every business needs some form of debt financing from time-to-time. Whether you need to buy inventory for an upcoming busy season, purchase materials to build out a large customer order, or to just bridge a cash flow gap, short term business loans can be the answer to keeping the doors open and orders flowing in.
Accessing short-term financing for small business is important to the country’s economy. In the US, small businesses create most new jobs and employ over two-thirds of the nation’s workforce. When the small business community cannot obtain sufficient credit to expand, or meet short term working capital demands, the entire country suffers. Unfortunately, since the 2008 economic downturn, many banks have ignored the debt financing needs of the small business community.
What Are the Terms of A Short-Term Business Loan, and What Do I Need to Qualify?
A short term business loan usually has terms to up to a year, but more often come due in 90 to 120 days. Qualifications for this type of loan are dependent on the strength of your documentation which can include a record of your payment history for other loans you’ve hade had, any payment histories to your vendors and your company’s cash flow history. All documentation should be in a professional format.
A good credit score is also needed, and many lenders may ask for a comprehensive business plan. You should also be prepared to offer your income tax returns for the last three years and cash flow statements for up to the past five years. Some lenders will secure the loan using inventory, accounts receivable, or other assets as collateral. When the loan is not collateralized, it is generally called a signature loan.
How Much Interest Can I Expect To Pay?
Short-term business loans usually are quoted as the prime interest rate plus a certain percentage. The prime interest rate is the rate that the banks charge their most creditworthy customers. The rate can be found in the financial section of most big city newspapers, and The Wall Street Journal. The plus component is the amount the bank adds to the prime rate and is a reflection of how risky the lender perceives your loan. A good customer may only a percentage point or two above prime while a newly established business may pay ten or more additional points.
In addition to the prime rate, some business loans are quoted using the LIBOR, or the London Interbank Offered Rate. This rate is used mainly for businesses in the import/export trade or doing a lot of international transactions. The LIBOR generally moves in conjunction with the prime rate. It is based on the Eurodollar loan markets.
I’m Just Starting My Company, Could I Get Short-Term Business Loans?
Start-up businesses can get short-term business loans, but it is more difficult to do so since they do not have the strong credit history or cash flow like established businesses. To convince a lender to offer an entrepreneur a short-term loan, a solid business plan and cash flow projections are even more important. Many lenders will insist on a personal guarantee from the business owner(s) in the case of default by the business itself. In addition, most lenders will require some form of collateral to secure the loan.
While the availability of business credit has just about evaporated since 2008, some banks and other lenders still offer their clients short-term business loans. If you’d like to know more about how we can help you get money for your business, call us for a FREE Business Funding Consultation at (800)416-7713.
Rick Anderson @FundingExpert1
Rick Anderson is the CEO and Senior Small Business Funding Specialist with Small Business Money Solutions. A company that helps small business owners and self employed professionals get the financial solutions they need to GROW and thrive. Rick has been in business for over 22 years, and his company has helped 22,485+ small business owners and counting. Rick has also written a book on small business finance entitled 10 Easiest New Money Sources For Business Owners.
Connect with him https://www.linkedin.com/in/RickAndersonSmallBusinessLoans or if you would like to ask him a question, send it to [email protected] If you’d like a FREE ‘Business Funding’ Consultation, call him at (800)416-7713.