Key takeaways

  • Alternatives to short-term loans include long-term loans, lines of credit and SBA loans
  • Grants, business credit cards, peer-to-peer lending and crowdfunding are also viable alternatives to short-term loans
  • To choose the right lending option for your business, consider term lengths, interest rates, requirements, terms and conditions

If your company needs fast cash to cover emergencies or seasonal expenses, a short-term business loan like a line of credit, invoice financing, or merchant cash advance can be a good source of funds. But these loans may carry higher rates and unfavorable terms than alternative options.

Here’s a look at some common alternatives to short-term business loans.

Long-term loans

Long-term business loans can offer repayment timelines anywhere from three to 10 years, which can help make monthly payments more manageable. By contrast, short-term business loans usually have repayment periods of 18 to 24 months.

One major benefit of a long-term loan is that you can usually borrow larger loan amounts. This is true because you can stretch those payments across a longer time period than with short-term loans. They also have lower monthly payments and tend to have lower interest rates, which can make it easier to fit the loan into your company’s budget.

Lines of credit

A business line of credit gives your company flexible access to a pool of cash. You can draw money from the available credit whenever you need to, and you can borrow multiple times over the life of the line of credit.

Banks, credit unions, and some alternative lenders usually offer long-term lines of credit. For example, Wells Fargo has lines of credit with long draw and repayment periods. But these loans are typically reserved for established businesses with good credit and strong business financials.

Some lines of credit are accessible to borrowers with bad credit, but these may have higher rates and short repayment periods. These loans may also require weekly payments. Lines of credit can also have high borrowing costs when they use factor rates or fees instead of interest rates.

Bankrate insight

Check out our guide to see the average business line of credit rates top lenders charge.

SBA loans

SBA loans are special loans insured by the U.S. Small Business Administration. You apply for them through banks, credit unions and other lenders. The SBA then guarantees a certain percentage of the loan, which helps make them more affordable than other loans.

The SBA offers several different loan programs. The two most popular types of long-term SBA loans are the 7(a) and 504.

For 7(a) loans, terms depend on how you use the loan and other factors. The maximum term for equipment, inventory and working capital loans is 10 years, while real estate loans go up to 25 years.

Those terms are the same for the Community Advantage loan, which is a pilot program set to expire on September 30, 2024. This loan program for underserved communities can include veteran or startup business owners and businesses located in low-to-moderate-income communities.

The 504 loan program has repayment terms of 10, 20 or 25 years. These loans can be used to buy buildings or land, build new facilities or purchase long-term machinery and equipment.

Bankrate insight

According to the SBA’s weekly lending report, as of August 6, 2023:

  • The SBA has approved 45,787 7(a) loans vs. 4,954 504 loans
  • The average loan size is $474,089 for the SBA 7(a) loan vs. $1,073,732 for the 504 loan
  • Most 7(a) loans (27.2%) are for $50,000 or less
  • Most 504 loans (48.4%) are between $500,000 and $2 million
  • 82.9% of SBA 7(a) loans and 82.7% of 504 loans are approved for urban areas
  • Most SBA 7(a) loans (53.5%) and 504 loans (79.8%) go to businesses more than two years old

Alternative business loans

There are many different types of business loans available from alternative lenders. If you’re having trouble getting a loan or want to consider alternatives, look into options such as:

  • Crowdfunding: An option for raising money from community members and supporters, sometimes in exchange for a reward or equity.
  • Peer-to-peer lending: A company or group of investors decides whether to loan you money. Typically, it’s more informal and lending requirements are less stringent than a bank loan.
  • Microloans: Smaller loans, typically offered to underserved communities.
  • Business grants: Usually awarded through an application process. Since grants don’t have to be repaid, they are competitive and often have strict requirements.
  • Business credit cards: While business credit card limits are typically lower than traditional loans, they can come with benefits like cash back or travel miles. In some cases, you may have an introductory APR, and no interest is charged if your balance is paid in full every month. They’re also a much better option for helping you build business credit.

Bottom line

Short-term business loans are one of the many ways that companies can borrow money. If you’re looking for more flexibility or need more time to pay back what you borrow, other options like long-term loans or SBA loans might fit the bill.

Whatever type of loan you settle on, make sure to take the time to shop around and compare your options. Getting offers from multiple lenders will help you find the best deal.

Frequently asked questions about business loan alternatives

  • A short-term business loan is a loan that you must pay back within a short period of time, typically less than 24 months.
  • Short-term business loans are good for companies that need to borrow relatively small amounts of money quickly. For example, a small business may need cash for an emergency or to help with seasonal changes that can disrupt cash flow. They’re not intended for larger, long-term investments.
  • A drawback of short-term business loans is that they have smaller maximum loan amounts. They can also have high interest rates and fees.