Best Short-Term Business Loan For Your Needs
Updated: Mar 1
Short-Term Business Loans: How to Identify the Best Option for Your Business Needs
Small business and startups form the bulk of Australia’s economy as they account for 96% of all businesses in the country and employ about 44% of the total workforce according to figures from the Australian Bureau of Statistics (ABS). More importantly, the ABS also reports that small businesses contribute around 34% of the GDP. It goes to show that the collective success of your favourite shops, vendors, and sellers all add up to make the economy vibrant. Without them, everything else will fail.
Although many small businesses have been able to adapt to a changing economy and weather the economic downturns, those who took massive financial hits were not so lucky to have survived the economic impact of the global pandemic. Even if some have managed to push on, a further financial infusion is needed to keep them afloat and seize greater growth opportunities. This is where short-term business loans come into the picture as they provide businesses with the resources to overcome their immediate needs.
Why Short-Term Business Loans?
Whether it’s a small shop around the corner or that massive conglomerate operating at the highest skyscraper in the city, many businesses have to borrow money for a variety of reasons. Sometimes, borrowing money is crucial to meet short-term needs like covering operating expenses, managing cash flow, or taking advantage of an unexpected opportunity.
When there’s no available funding or cash on hand to offset certain costs like payroll, inventory, and other daily operating expenses, getting short-term loans is needed. Oftentimes, the current economic situation and the volatile nature of seasonal trends bring revenue fluctuation. With short-term business loans, additional cash injection will help businesses keep up with operations during “downtimes.”
Unexpected expenses and emergencies, such as equipment breakdown or natural disasters like the recent flooding in New Zealand or the deadly earthquake in Turkey, can happen at any time that funding such can only be obtained through short-term loans.
If you ask any business owner, they will always take any opportunity that will grow their business even if they have to borrow money. Without additional funds, it would be impossible to expand operations, purchase new equipment, or hire more staff.
Bridging cash flow gaps: Small business owners may have trouble with cash flow when they're waiting for customers to pay or have a gap between when they pay their suppliers and when they get paid by their customers. Short-term business loans can bridge these gaps, allowing them to cover expenses until they receive payment.
Finally, there will always be cash flow gaps in any business especially when businesses have to wait for customers to pay or when they pay for suppliers. To bridge such gaps, a short-term loan is needed for the meantime until the issue is sorted out.
What Loans to Choose from?
Different types of short-term loans would suit small business financing.
1. Line of Credit
Getting a line of credit allows businesses to borrow up to a certain limit and repay the loan as they pay off the balance. They can draw on the line of credit as needed thereby making a valuable option for managing cash flow. These unsecured loans usually have a lower interest rate than other short-term loan options.
2. Merchant Cash Advance
In this type of loan, businesses can access funding based on the percentage of their future credit card sales. It is often used by businesses with a high volume of credit card transactions. The lender will provide a lump sum to the business in exchange for part of their future credit card sales with repayment usually done daily or weekly. Unlike other short-term loan options, a merchant cash advance has higher interest rates and less predictable repayment.
3. Business Credit Cards
Some online lenders and credit card companies offer business credit cards with a line of credit that can be used for short-term financing needs. These credit cards offer a revolving credit feature that can be used for everyday expenses and larger purchases. The interest rate is usually higher than other short-term loan options and the credit limit is often lower than a line of credit.
4. Invoice Factoring
Businesses can borrow against the value of their outstanding invoices, usually around 80%. That means, they are responsible for collecting customer payment and will then repay the lender the advance plus fee. Invoice factoring can be useful for businesses with a lot of outstanding invoices and need cash quickly. Unlike other short-term loan options, the business will lose control of the invoicing process and pay higher interest rates.
5. Equipment Financing
It's another specialised short-term loan option designed to help businesses purchase equipment and other assets, with the equipment serving as collateral. This is a secured loan with a longer repayment period and higher interest rates. However, it can be used as a tax benefit as the interest and depreciation on the equipment can be written off as a business expense.
What are the Best Short-Term Loans?
There are many banks and specialist online lenders that offer a variety of business loans suited for Australian businesses.
Zip Business - Line of Credit
Unsecured business funding up to $500K. Start the online application process in just 5 minutes and get access to funds within 24 hours once approved. Great for ABN-registered businesses with an annual turnover of $200K+.
OnDeck - Short-Term Business Loan
Unsecured business loans from $10,000 - $250,000, over 6 to 24 months. The online application takes only 10 minutes and you'll know if you're approved within hours.
Lumi - Unsecured Business Loan
A straightforward business loan with no hidden fees or charges. Speedy application and approval process with fast access to funds.
Waddle - Invoice Finance
Connects with your accounting software to make managing cash flow easy. Get funds from your unpaid invoices with Waddle, a cash flow platform combining innovative tech with competitive rates and flexible terms.
Bizcap - Unsecured Business Loan
Business Loans from $5,000 to $600,000 with high approval rates. Access to funds in as little as 3 hours. Cash flow-friendly repayments and open-minded offers.
Shift - Business Overdraft
Register online in minutes to access up to $1 million. Link to any business transaction account so you can transfer as little or as much as you need. You'll only ever pay interest on what you spend, not on the overdraft limit.
Octet - Invoice Finance
Increase cash flow by unlocking the power of your receivables with Octet's Invoice Finance solution. Receive up to 85% of your debtor’s ledger with tailored facilities ranging from $100K to $10M.
Prospa - Plus Business Loan
Prospa uses risk-based pricing to determine your interest rate, which can range from 9.9% - 26.5% p.a. simple interest. They look at factors including your industry, years in business, cash flow, creditworthiness, and the overall financial health of your business.
How to Choose the Best Option
When choosing the best short-loan option for your business, consider these four tips:
✔️ Assess your Financial Needs
Before applying for a short-term loan, take time to assess the financial needs of your business. Consider the purpose of the loan, how much you need to borrow, and how quickly you need the funds. Take things one step at a time so you can narrow down the types of loans that will best fit your business.
✔️ Know your Credit Score and History
Let's face it, your credit score and history play an important role in determining the types of loans you will qualify for and the interest rates you will be offered. That means you have to review your credit report in great detail and then address any errors or discrepancies before making that application.
✔️ Evaluate the Loan Terms and Fees
Every loan has its own set of terms and conditions as well as fees. Take the time to thoroughly review and compare the interest rate, repayment period, and additional fees for every loan you are considering.
✔️ Determine the Best Lender
Not all lenders are created equal so you need to do your due diligence to find the most reputable lender with a great track record of working with businesses like yours. Look for reviews and testimonials from other businesses and try to reach out to the lender to ask questions you may have.
Although there are a lot of short-term business loans to consider, the application process can be narrowed down to three basic steps:
✔️ Required Documentation
Before applying for a loan, take time to gather the required documentation - financial statements, tax returns, business permits, and other information about your business.
✔️ Follow the Process
Once you have all documentation sorted out, you can begin the application process. This will typically involve filling out an application form, providing the required documentation, and submitting the application to the lender.
✔️ Approval and Funding
After you apply, the lender will review it and determine whether or not to approve the loan. If the loan is approved, the lender will typically provide funding within a few days. Be sure to understand the terms of the loan before accepting funding and make sure you are comfortable with the repayment schedule.
Short-term business loans provide the much-needed financial infusion for small businesses to grow and thrive. Depending on the loan option chosen, take time to consider the terms and conditions, fees, interest rates, loanable amount, and repayment period. It's essential for business owners to carefully assess their financial needs, understand their credit history, and evaluate each loan option before making a decision. At the end of the day, making a wrong loan choice could lead to more financial difficulties and even business failure.
Aside from choosing the right short-term loan, it pays to have a solid business plan, clear forecasting, and sound budgeting in place to ensure business success in the long run.
Want to get your business funded fast? Funding Link is committed to providing small to large businesses with flexible and fast funding solutions. Find out what your options are. Apply here now!