Picture these scenarios: You run a busy clothing store and your only cash register just broke. Or the holiday season is coming up, and you need to hire extra workers. But you don't have the cash to fix the register or hire the workers. In both cases, a short-term business loan can help. You get money you need now and, with the profits you make, repay it over a short period of time.
Short-term business loans typically come in small amounts ($5,000 to $250,000), carry repayment terms of a few months to a year or two, have looser qualifications and can provide fast cash at a much-needed time. However, short-term business loans generally have high borrowing costs -- something to bear in mind when you're shopping around.
In contrast, long-term business loans are typically larger ($250,000 to $1 million or more) and have a repayment period of five to 15 years or longer, making them better suited to a real estate purchase, a business acquisition or refinancing debt. You may not qualify for these large loans if you have bad personal credit or lack an established operating history, or if you can't provide collateral to back the loan.Short-term business loans: Are they right for your business?
There are several situations when a short-term business loan may be appropriate for your small business. Here are a few:
To finance a small expansion: A short-term business loan could make more sense than a long-term loan if you don't want to carry the debt of a small expansion, such as hiring employees or buying equipment, for years to come. Eliminating the debt earlier reduces financial risk and improves cash flow; it's one less regular obligation to repay.
To manage cash flow gaps: Uneven cash flow is a common issue for seasonal businesses, such as tax preparers in the tax off-season. Instead of running up expensive credit card debt or taking out a home equity loan to pay the bills, a short-term business loan or line of credit can help manage the slowdown.
For emergencies: What if your clothing store doesn't have the cash in the bank to fix the broken register? What if you run a pizzeria and your only oven breaks down? Short-term business loans make sense in these types of emergencies. You can get fast cash for repairs, then repay the loan over a short time period -- that way, you're not still paying for a cash register or oven five years from now.
To buy inventory: To keep up with growing customer demand, you may need to buy more inventory. Or perhaps you have the opportunity to buy inventory at a discount from suppliers -- but only if you buy it now. A short-term business loan could be your best bet, as long as you're certain you'll be able to sell the inventory to cover the costs of the loan.Where to find short-term business loans
OnDeck: OnDeck provides short-term business loans repaid daily or weekly over three to 36 months and lines of credit that are repaid weekly over six months. Online applications can be completed in as little as 10 minutes, with funding arriving within as little as 24 hours.
You'll need to meet a range of qualifications. Among them: You must have been in business at least a year, and you cannot have had a bankruptcy in the last two years. To get a term loan, you'll need a personal credit score of 500 or higher; 600 or higher for a line of credit. And you'll need to have had $100,000 or more in revenue in the past year to qualify for a term loan; $200,000 or more to qualify for a line of credit.
Big banks are now approving twice as many small business loans as they were two years ago.
Thats according to the latest Biz2Credit Small Business Lending Index data for December 2015.
In fact, the small business loan approval rates at big banks and institutional lenders are again at new post-recession highs.
Lending approval rates by institutional lenders, which include family offices, pension funds and bank credit facilities, increased from 62.4 percent in November to 62.5 percent in December.
"We are seeing increasing interest from international funds seeking higher yield investments," Biz2Credit CEO Rohit Arora said. "Institutional lenders have reduced the risks on these types of investments through digital algorithms that have automated the loan approval process and global investments are becoming more mainstream. With the weakening of emerging markets and strong value of the US dollar, we are anticipating more international funds to enter the small business finance mix."
Additionally, small business loan approvals by big banks (those with more than $10 billion in assets) improved by one-tenth of a percent to reach 22.9 percent in December.
"The big banks have maintained their aggressive approach to lending to small businesses and with the adoption of the Federal Reserve's interest rate hike, I expect they will be even hungrier to grant loan requests," Arora explained. "The adoption of technological advancements on the digital platforms of big banks has streamlined the loan application process and has resulted in lower chances of loans defaulting, thus increasing profitability and a higher volume of loan approvals."
Small banks loan approval rates also significantly increased from 48.9 percent in November to 49.1 percent in December.
According to Arora, small banks are approving more small business loans applications under the SBA loan program. The program has significantly reduced the risk they assume as lenders.
Meanwhile, while the economy rebounds, loan approvals at credit unions and alternative lenders continue to slow.
Loan approvals by alternative lenders seem stuck at 60.7 percent, which is the lowest they have ever been since August 2011. The emergence of institutional lenders in the small business lending marketplace has also put a lot of pressure on alternative lenders.
Credit unions continued their steady decline, hitting 42.3 percent in December down from 42.4 percent in November.
Arora says that credit unions are losing market share due to their failure to adequately adapt to technological advancements. "Borrowers seek speed and convenience; many credit unions are lacking in the digital department and this has resulted in their decline in popularity," he added.
Biz2Credit creates monthly indexes by analyzing data gathered from 1,000 small business loan applications made through the online lending platform.
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Residents of Jefferson County affected by the Christmas tornado were offered a chance Wednesday to receive financial assistance as they begin to repair and rebuild.
A disaster loan outreach center has been opened at the Powderly Branch Library. Officials from the Alabama EMA, US Small Business Administration, and other agencies will be present to inform the public about available programs. The center is open from 8 am until 5 pm on weekdays and 10 am until 2 pm on Saturdays. The center will be open until February 4th or longer if demand requires.
The US Small Business Administration (SBA) offers low-interest loans to disaster survivors, particularly those who are not able to acquire credit from commercial lenders. Home loans up to $200,000 and business loans to $2,000,000 are available. Loan applications can also be filed online. Applicants are not required to have insurance.
The ideal situation would be to get all of our customers through this process with no out-of-pocket expenses. There by accepting a loan from SBA will get you started with your repairs and should your insurance company decide to fully compensate you for your losses than those funds would be used to pay off the loans any so theres no duplication of benefits, said SBA representative Richard Butler.
Centers were also opened in Montgomery and Somerville to assist residents affected by the storms which swept through the state between Christmas and New Years Eve.