Key takeways

  • Short-term loans are best used for emergency expenses, seasonal cash flow gaps, time-sensitive opportunities or to purchase inventory
  • Short-term business loans can have high interest rates or fees, so you'll need to review the loan agreement carefully before signing
  • Short-term loans are available through traditional lenders, like banks, and online or alternative lenders

When you run your own business, there may come times when you may need cash quickly to cover an immediate need. Short-term business loans can help, but you’ll need to know which type of short-term loan is right for you and its advantages and disadvantages.

We’ll break down common situations where short-term loans can help your business and the types of financing to consider.

Emergency expenses

In some situations, your company could face a financial emergency and need to come up with quick funds. For example, if a key piece of equipment breaks, you must get it repaired to keep your company running. Borrowing money to cover that expense makes sense.

A business line of credit or term loan is a good source of funds to help cover emergencies. You’ll likely need to work with an alternative lender for fast approval and funding. They tend to specialize in providing loans in as little as 24 hours, which is much faster than loans typically offered by banks and credit unions.

Fill gaps in cash flow

One of the most important things for business owners is to keep track of their cash flow. Businesses wondering if they should get a short-term business loan may want to start by evaluating their revenue and expenses. Your company can be profitable, but if income doesn’t align with expenses, you could find yourself with bills coming due and no money to pay them.

Seasonal businesses often face this issue, with lots of money coming in during busy seasons and limited income during the off-season.

The best business lines of credit offer a quick and flexible source of funds to cover short-term cash flow issues. The benefit is that you can draw funds whenever needed and only pay interest on your outstanding balance. Just watch out for maintenance fees and other charges. The overall cost of the loan could rise significantly based on these extra charges.

If you can’t qualify for a line of credit, some businesses rely on other types of financing to help cover cash flow issues. There are many types of loans that are accessible to business owners with bad credit but will carry higher rates and fees. These include:

Bankrate insight
The 2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey found that 65 percent of small businesses seeking financing were applying to meet operating expenses, and 53 percent were applying to expand business, pursue new opportunities or acquire business assets.

Purchase inventory

Inventory is essential for any business that sells products rather than services. Even service-based businesses need the supplies involved in providing that service.

You might need help getting funds to buy inventory if you run a retail store. Inventory financing loans are specially designed to help in these situations. The inventory itself serves as business collateral for the loan, making approval easier.

These loans are often limited in size. Lenders may only offer anywhere from 20 percent to 80 percent of the inventory’s total value. It can also be difficult to find a lender that offers inventory financing. Term loans and lines of credit are good alternatives to consider.

Time-sensitive business opportunity

Sometimes, your company might find a time-sensitive opportunity that could help the business grow. For example, if a piece of real estate in a prime location hits the market, it could pose a huge chance to expand your footprint, but you need cash to secure a lease.

In this scenario, speed is the most important factor, and the type of loan depends on how much funding you need and how long you want to take to pay it off. For large loans, long-term loans give you up to seven years or longer to pay off debt, but you’ll likely pay more in interest compared to short-term loans you have to pay off in two years or less. Some businesses may want to consider a working capital loan, which helps cover your business’s day-to-day operations, allowing you to take advantage of the time-sensitive opportunity.

Bankrate insight

If you’re considering a short-term loan, shopping around and finding a lender with the best rates for your organization’s desired terms is smart. Some of the best short-term business loan lenders include:


Pros and cons of short-term business loans

Although short-term loans can help with emergency expenses or time-sensitive business opportunities, they aren’t the best fit for every business. Before agreeing to a short-term business loan, it’s important to review the pros and cons.

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  • Fast funding
  • More relaxed eligibility requirements
  • Variety of funding options based on needs
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  • Short repayment timelines
  • Potential for high fees and interest rates
  • May encourage a cycle of debt

Where to get short-term business loans

If your company is in the market for a short-term business loan, there are several places to look.

  • Banks and credit unions. These are traditional sources of business financing. They typically have physical locations where you can apply or get in-person help. They also tend to offer reasonable rates and fees. But they can take longer to approve loans and tend to prefer lending to established businesses with good or excellent credit, so their eligibility requirements tend to be more strict.
  • Online lenders. Online lenders usually focus on quick loan approvals and may have more flexible eligibility requirements. But borrowers with less-than-ideal credit might face very high costs, including high loan fees and interest rates. They may also have lower loan limits compared to banks and credit unions.
  • Nonprofits and government organizations. Depending on the size of your business, where you operate, and other factors, local government or nonprofit entities may offer loans. These sources often have great deals but can involve long lead times, a lot of paperwork and low loan limits.

Bankrate insight
The 2023 Report on Employer Firms found that most small business applicants looked to banks for financing: 43 percent applied at a large bank and 30 percent at a small bank, whereas 22 percent of applicants looked to online lenders, and only 4 percent applied at CDFIs.

Bottom line

Short-term business loans are a great way for your company to cover immediate financial needs, but it’s important to remember their cost. If you can, take the time to shop around to find the best short-term loan for you.

Frequently asked questions

  • A short-term loan can be useful if you need financing to help cover costs and keep your business running. But they come at a cost since you’ll have to pay interest and fees. A business credit card is also good for covering short-term  needs. These lines of credit can also help you build credit, and you may even be able to avoid paying interest as long as you pay your balance every month.
  • The repayment period on short-term business loans is generally between 3 and 18 months, though some lenders may go up to 24 months.
  • Short-term business loans often have low loan limits and may have high interest rates. You may also pay significant fees, especially if you apply with a lender focusing more on quick approvals or have poor credit.