Short-term business loans offer small business owners a way to get funding when they need it most. Online and traditional lenders offer short-term financing with streamlined applications, quick approvals and funding in five days or less, with repayment required in full in a few weeks to 24 months. Short-term business loans can cover emergency expenses, startup costs and slow times to keep the business afloat. 

Ways to use a short-term business loan

There are several types of short-term business loans to choose from. Your funding needs, the way you plan to use the loan and your repayment ability can help you narrow down which type is best for your small business financing needs.

1. For upfront costs

Some small businesses complete work for customers or clients and get paid after the project is complete. Startups also typically have costs they must cover to get off the ground. Short-term business term loans and business lines of credit may work best for fast funding of upfront costs.

Since most short-term loans require full repayment within a year or two, they may not be the right fit for long-term startup needs or if you won’t be able to keep up with repayments.

2. For emergency or unexpected expenses

Surprise expenses — such as broken equipment — can make small business owners scramble for fast funding to cover the cost. Short-term business term loans offer predictable fixed payments that may work well if you need dependable repayment terms. A business line of credit is another option since you only pay interest on the amount you draw, and repaying increases your available credit.

A short-term loan may not be the best option for large emergency expenses unless you can meet the repayment terms, as defaulting will damage your credit score.

3. To buy inventory

If the busy season is fast approaching or your products are in high demand, keeping inventory in stock is crucial to your business’s success.  Short-term business loan types that could offer a solution include:

  • Business line of credit: Provides the capital you need with fewer costs, as you only pay interest on the drawn amount.
  • Invoice factoring: Leverages outstanding customer invoices to provide immediate capital to purchase inventory. This works best if you’re a B2B company.
  • Merchant cash advance (MCA): Provides a lump sum upfront with repayments taken daily or weekly from credit or debit card sales.

A business line of credit may be the safest choice to buy inventory. Invoice factoring depends on your clients’ creditworthiness and could negatively impact your profit margins if they default on their invoices. MCAs can have extremely high fees and are best only for businesses with substantial card sales.

4. To cover seasonal income gaps

Seasonal businesses can fail to stay afloat during the off-season. Short-term business financing can provide the income you need for low-income months. 

Consider short-term term loans or a business line of credit to fund your seasonal income gaps for more favorable and predictable repayment terms. Researching small business lenders can help you get the best loan terms to avoid defaulting and affecting the next season’s income.

5. To pay for marketing

Investing in marketing can generate revenue and bring awareness to your small business. Consider a business line of credit to meet advertising expenses. They’re a good fit for variable expenses, such as:

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

Marketing strategies can take months or even years to pay off. Make sure you can afford the payments before taking out a short-term business loan to fund your advertising expenses.

The bottom line

There are multiple ways to use a short-term business loan. Determining how much you need, what you need the funds for and what repayment terms are best can help you decide which loan type is right for you. You can find the one with the best repayment terms and reputation by comparing short-term business lenders. Make sure you understand business loan requirements before diving into the application to raise your chances of quick approval.