How can you use a short-term business loan?

Short-term business loans provide flexibility and quick access to capital, making them a top choice for a variety of situations, including covering emergency expenses, startup costs and gaps in revenue due to seasonal trends. Accounting for your funding needs, loan purpose and repayment ability can help you decide which type of short-term business loan is best for you.

Upfront startup costs

Startup businesses typically have costs they must cover to get off the ground — before they do work that they can get paid for. Short-term business term loans can help fill those financing gaps if you know you’re going to be paid relatively quickly; however, be mindful about keeping up with repayments if your customers have longer payouts, or if your funding needs are more long term.

Emergencies or unexpected expenses

Short-term loans can also be used for surprise expenses — such as broken equipment or unexpected opportunities to make a helpful business purchase. Instead of putting emergency funding on a credit card or dipping into savings, a term loan offers predictable fixed payments.

Make sure you can afford the payments — if you’re taking advantage of an unexpected opportunity, know it will pay off within the term of the loan.

Seasonal inventory purchases

Stocking up or purchasing new inventory for an upcoming busy season can also be a good use for short-term loans, including a business line of credit, invoice factoring or a merchant cash advance (MCA).

While a term loan can offer you the most affordable short-term financing, a business line of credit may offer more flexibility, especially if your seasonal needs are consistent annually. With a line of credit, you only draw what you need, and you won’t have to apply each year.

Cover seasonal income gaps

If your business is seasonal, short-term business financing — like a term loan or a line of credit — can help fill gaps in cash flow that your business may experience in slower months. Make sure you can afford repayments to avoid falling behind and affecting your next season’s income.

Short-term marketing campaigns

While your marketing budget should come from your business’s revenue, using a short-term business loan to invest in a fast marketing campaign that will allow you to capitalize on a specific market can be a good idea. These can include:

• Social media ad campaigns.
• Influencer collaborations.
• Hiring an agency for website development or market research.
• Paying for print, radio or TV advertising.

Generally, marketing strategies can take months or even years to pay off, so run some projections to ensure that your strategy will help generate revenue, and that you can afford the payments.

Bottom line

There are multiple ways to use a short-term business loan, including emergency expenses, upfront startup costs and seasonal needs. Keep in mind, though, that a short-term loan may not be the best choice for your business. Weighing the pros and cons of this type of loan can help you determine if there is a more appropriate option. Make sure you understand business loan requirements before diving into the application to raise your chances of quick approval.

Frequently asked questions

• What is a short-term business loan?

  A short-term business loan is a type of funding typically with short repayment terms. Repayment terms for short-term loans usually range from a few weeks to 24 months.

• Are short-term business loans good?

  Short-term business loans can be good for small businesses needing funds fast, like for emergency situations, time-sensitive business opportunities or seasonal slumps. However, if you don’t need funding fast, a business loan with a long repayment period may be more beneficial, as short-term loans can come with higher interest rates and fees.

• When would a business use short-term financing?

  Businesses can use short-term financing in several situations, including to cover upfront costs, emergencies, seasonal fluctuations and marketing.

• What are some alternatives to short-term business loans?

  If you decide a short-term loan may not be right for your needs, consider the alternatives. Many businesses turn to other types of funding to meet their short- and long-term financial needs.

  • Long-term loans
  • Lines of credit
  • Peer-to-peer lending
  • Microloans
  • Business credit cards