Best Ways to Get Short and Long Term Funding for Small Businesses

Your small business could be the next big thing! But first, you must source the money to get started. Achieving your financial goals will be easier and faster when you know the best ways to get short and long-term funding for small businesses.

Business owners always need funding to expand their business. Either you are starting a new venture from scratch or looking at expansion plans, you may not have much access to financing. Read on to know how you can get short and long term funding for your small business.

There are many options open to you if you’re looking to access short or long term funding for your small business. This blog post will look at the best ways to get some cash and help you get back on track.

The Basics

Short-term vs. long-term finance

Before we go further into the specifics of short-term financing, let’s take a moment to contrast short and longterm financing.

With this concept in mind, short-term financing varies significantly from long-term finance in the following ways:

The most apparent distinction between the two kinds of finance is that long-term funding has longer payback periods. Whereas short-term financing is often used to refer to any venture having a payback period of less than a year, long-term finance may refer to any loan with a repayment term of more than a year, up to and including ten or fifteen years.

Payback periods: Perhaps the most apparent distinction between the two financing options is the length of repayment terms. Whereas short-term financing normally alludes to any venture having a return period of one year or less, long-term funding may refer to a payback loan lasting more than one year, even 10 or 15 years.
Purpose: Short-term financing is efficient for capital investment and other urgent requirements. On the other hand, long-term financing is often utilized for larger purchases and projects such as renovations, acquisitions of property, purchases of a company, etc.
Cost: While the real difference between both kinds of finance rests in terms of payback, it must be mentioned that short-term funding is usually the more costly type, while long-term finance is more cheap. However, long-term financing may include higher interest payments owing to longer reimbursement periods.
Schedule of payments: Short-term financing programs usually demand daily or weekly payments. On the other side, long-term funding may be more likely to be paid on a monthly basis.
The procedure of application and the funding time: In general, short-term financing will imply more straightforward needs, a shorter application process and speedier funding timeframes. This implies higher qualifying criteria, more complex application processes, and lengthier funding periods for long-term funding.

Knowing When Short-Term Financing is Needed

The first step in finding short-term financing options is first to figure out why you need funding. Most financiers will need to know why you are obtaining funding and if you have a strategy in place, you will be far more likely to utilize the money properly. Here are some of potential reasons:

In order to cover a big cost (New equipment, for example)
To develop the company (e.g. staff hiring)
To assist manage changes in cash flow (If your sales are seasonal, for example)
In order to repay debt
To assist you get through a tough time

In general, short-term funding is typically used for capital investment or urgent requirements; it’s simpler to qualify, you get the money reasonably fast and the repayments will only be a year longer. Short-term loans or financing are also more costly and demand daily or weekly payments. If you are seeking for prolonged assistance or specific expenditure, long-term financing may be better.

Knowing When Long-Term Financing is Needed

Should you seek for a short-term or long-term loan? The solution to this issue generally relies on the requirements and objectives of your company and how you intend to spend the money.

If you wish to generate short-term income by buying more goods or if you need additional cash to meet daily expenditures, short-term credits may be most meaningful. On the other hand, larger company expenditures beyond that limit are more appropriate for long-term business loans.

For development and expansion expenses, long-term company loans are ideal to:

Open one or more new sites
Expand your present site
Acquisition of another company
Purchase of property
Construction expenses such as renovation of existing structures
Purchase costly new equipment necessary for your company
Recruit new staff as your company grows
Existing debt refinancing
Switching to new or similar markets

In summary, it would be most helpful to seek long-term company loans if you have more costs that do not impact your bottom line quickly.

Best Ways to Get Short Term Funding

Loans for small businesses

This is a typical small company loan for working capital purposes such as employee wages, purchases of products and services, and everyday operations. These loans typically last between one and twelve months and are handled by either a bank or a specialized lender. Your company will almost certainly get a lump amount at the start and will be required to repay it with interest over time via regularly scheduled installments. If you apply via a bank, your company plan will be thoroughly reviewed, and financing could take longer to get. If your business is relatively young, it may be preferable to opt for a a specialized lender.

Small company loans are somewhat more costly, averaging about 10% in interest, but they are an excellent choice if you need fast and simple access to operating cash. To qualify for the loan as a founder, you must have a good personal credit score.

Finance for equipment

Equipment financing is a kind of short-term loan that is ideal for companies that need significant capital or equipment. With this kind of loan, you basically utilize the collateral for the loan as your existing equipment. This significantly increases the lender’s security and, therefore, the loan’s cost and convenience for you. There are many kinds of equipment financing available, including renting before buying, repaying in full over a certain time period, or renting with a monthly premium.

If you need money for a new coffee maker, printer, or other big piece of equipment, this kind of short term funding is an excellent option.

Credit line

A line of credit provides your company with immediate access to finance anytime it is required. As with a credit card, users pay interest solely on the amount borrowed. Although the line of credit may need some kind of collateral (such as a home or vehicle), it is significantly more adaptable than other forms of borrowing. It often has a lower annual percentage rate than credit cards and may be used for up to a year.

A line of credit is an excellent source of funding for seasonal companies with uncertain cash flow; it serves as a more long-term option, ensuring that enterprises have access to money whenever they need it. Lines of credit are available via alternative lenders like Drafty and Polar Credit.

Finance by equity

Equity funding is another option for growing businesses. Equity finance is basically trading your company’s ownership for money. You trade funds for shares with angel investors, venture capitalists, and other investors.

While donations are handled fast and there are possibilities to raise a significant amount of money, one will have to give up considerable control over your business. This kind of funding is often best suited for businesses seeking to develop and diversify their client base.

Finance for invoices

Invoice finance is a viable alternative for B2B companies that interact with customers and generate invoices. If late payments have a significant impact on your cash flow and your company needs more regular and consistent income, invoice financing enables you to utilize your invoices as security. How does it function? You submit the invoice, a specialist lender advances 50% to 90% of the entire invoice amount in advance, and you repay them after your customer pays.

This is an excellent source of financing for company owners with a poor credit rating who need cash fast. The primary disadvantage is that such lenders may demand a high fee, making this a costly short term financing choice in the long run.

Merchant Cash Advance

MCA may be an appealing alternative for small companies who are unable to get a conventional bank loan. A MCA is a capital advance secured by a proportion of future sales. When you take out a merchant cash advance, you are effectively “selling” a portion of all of your credit or debit card purchases until the amount owed has been satisfied.

However, it is necessary to be suspicious about MCAs due of the industry’s lack of regulation. Additionally, a company agrees to forego potential sales that it may need at a later period.

Pros of Short Term Funding

Quick access to finances while you’re in need. The primary benefit of a short term loan is that you can always get money within a week after approval. If, for instance, you need urgent payment of existing invoices or the acquisition of new inventory, a short term financing can assist you in meeting your financial requirements instantly.

Available to people with poor credit as well. Banks will examine your credit report prior to granting you a loan, however if your credit score does not meet their standards, your loan application will be rejected, as you will be seen an excessive risk. Short-term lenders are liberal with credit reports and will evaluate your loan based on factors such as asset values.

The repayment flexibility. Corporate Guardian can assist you in obtaining a short-term financing with a variety of repayment choices, such as a three-month loan or a six-month loan.

Effortless Processing. A small biz loan is processed considerably more quickly than a conventional company loan. Unlike the time-consuming procedure of a conventional business loan, the majority of the loan processing stages occur online, saving both creditor and borrower significant time and effort. Once your loan has been authorized, it just takes a few hours for the funds to be released.

Simple Documentation. A short – term funding requires relatively minimal paperwork. A few simple personal and company papers are sufficient to get loan approval. The minimum paperwork simplifies the loan processing procedure.

Simple Approval. Obtaining approval for a small business finance is significantly simpler than obtaining permission for a conventional loan. The conventional business loan has strict loan eligibility requirements that are very tough for small companies to satisfy. However, the qualifying requirements for a small company loan are considerably more lenient. A small company loan may be readily approved for. The candidate for a business loan should constantly examine the loan’s EMI. This will assist you in planning your finances.

Low Capital Costs. Due to the fact that borrowers repay short-term financing in a shorter period of time, short-term financing usually accrues less interest.

Cons of Short Term Funding

Increased interest rates. The primary disadvantage of such loans is that they often have a higher interest rate than long-term loans. However, it is recognized that a short-term credit is often used as a bridge loan to refinance some debt to a more conventional long-term loan.

The Term of the Loan. As the name implies, this is a short-term loan. The loan duration is between three and eighteen months. While the shorter term allows you to pay off debt sooner, it increases the EMI amount. As such, ensure that your income stream is sufficient to sustain the company while paying the high EMIs associated with a small business loan.

At Risk of Debt Trap. The EMIs for short term loans are very expensive. Typically, short term debts are taken out by individuals who have an immediate business need. If you have another financial emergency within the payback period, you will have to get additional loan to repay the prior one. As a result, many borrowers of short-term business loans fall victim to debt traps.

Increased Frequency of Scheduled Payments. Another unfavorable impact of short-term finance’s “short” component? Your planned repayments will be significantly more frequent than with longer-term alternatives.

Where To Find Short-Term Business Loans

1. Fundbox

Fundbox is a lender that specializes in short-term financing and provides companies with credit lines. Fundbox offers lines of credit in the range of $1,000 to $100,000 with 12- or 24-week periods. Fundbox line of credit interest rates begin at 4.66 percent of the requested amount.

To qualify for a Fundbox line of credit, you must have been in business for at least 3 months and have a baseline credit score of 500. You must also have a minimum annual income of $25,000.

You may apply for a credit line from Fundbox by establishing an online account and linking to your company bank or accounting software. You may apply online in minutes and get money the following day.

Fundbox will be a beneficial short-term financing alternative for a range of company owners seeking for credit line due to its automated, easy application procedure and liberal criteria.

2. BlueVine

BlueVine is a provider of short-term financing, including invoice factoring, credit line, and term loans.

You may cover bills worth up to $5 million via their invoice factoring service, with periods ranging from one to thirteen weeks and borrowing rates ranging from 0.3 percent to 1.7 percent each week. To be eligible for invoice factoring with BlueVine, you must have a baseline credit score of 530, be in company for at least three months, and generate at least $100,000 in yearly sales.

BlueVine provides lines of credit ranging between $5,000 to $250,000, with periods of six or twelve months with interest rates beginning at 4.8 percent and up to 51 percent. A BlueVine credit line requires a minimum annual revenue of $100,000, a credit score of 600+, and at least 6 months in business operation.

Finally, the BlueVine business financing is a short-term financing service with a 26 or 52-week repayment period. This loan is available in amounts ranging from $5,000 to $250,000, with interest rates starting as low as 4.8 percent and rising as high as 51 percent. BlueVine’s term loan criteria are identical to their credit line product.

You may apply for any of BlueVine’s short-term financing options online, which should take no more than a few minutes to complete. BlueVine pays out to consumers on average within a few working days.

BlueVine, like Fundbox, is an excellent alternative for quick, accessible finance, particularly if you are unable to qualify for conventional bank financing.

3. CAN Capital

CAN Capital finances businesses on a short-term basis via short-term loans.

To apply for any of CAN Capital’s short-term loans, you must have a credit score score of at least 550 if your company has been in operation for six years or more, or a credit score of at least 600 if your business has been in operation for less than six years. Additionally, you must generate $4,500 in monthly sales and have a minimum of three months of continuous income—although 12 months is preferable.

CAN Capital offers short-term loans in the range of $2,500 to $250,000. Interest is calculated on a factor rate basis, beginning at 1.15 and increasing to 1.48. These loans have terms ranging from three to twenty-four months.

As one of the industry’s pioneers, CAN Capital enables you to request for short-term loans electronically and can deliver financing in as little as a few days. Additionally, CAN Capital can analyze your request to see if you meet their medium-term loan product.

CAN Capital can often provide some of the cheapest rates on short-term lending, as well as quick financing, and expertise

4. LoanBuilder, a service provided by PayPal

You may also try LoanBuilder from PayPal as another option of short-term financing for short-term loans.

This one-of-a-kind kind of short-term loan is serviced via weekly automated installments. Amounts vary from $5,000 to $500,000, with periods ranging between 13 to 52 weeks and an annual percentage rate as low as 24.9 percent.

In comparison to other short-term financing options, a LoanBuilder loan requires a higher minimum credit score of 600, nine months in business operation, and a minimum annual revenue of $42,000.

That said, if you register online and are approved for a loan through LoanBuilder, you may be able to get cash within 24 hours of your application.

As a result, LoanBuilder is an excellent option for fast company loans, particularly if you have substantial credentials but are unable to secure a bank loan.

5. The Business Backer

The Business Backer offers three distinct kinds of short-term financing products: credit lines, commercial cash advances and short-term loans (via its sister business firm Headway Capital).

To begin, their line of credit program offers periods of up to 12 months on sums ranging from $5,000 to $100,000. The daily interest rate on this kind of borrowing may vary between 0.11 percent and 0.22 percent.

Following that, Business Backer provides short-term loans with periods ranging between four to eighteen months, loan amounts ranging from $5,000 to $200,000, and interest rates beginning at 1.2 factor. Ultimately, the company will have the same quantities and conditions as its short-term loan, but the interest rate begins at a factor of 1.19.

To be eligible for these short-term financing options, you must have a minimum annual revenue of $250,000, a baseline credit record of 600, and at least one year in operation. You may apply online for any of these solutions from Business Backer, and if you act fast after getting a preapproval offer, you might receive money in as little as 24 hours.

In comparison to other short-term creditors, qualifying for funding from Business Backer may be more challenging. Having said that, if you qualify, Business Backer is well-known for being transparent about their terms and costs, as well as providing incentives for repaying loans early.

6. Kabbage

Following that, Kabbage, a short-term financing provider, rapidly finances small companies via their credit line.

With loan periods ranging from 6 to 12 months (and also 18 months) and monthly interest rates ranging from 1.5 percent to ten percent, Kabbage’s line of credit is an especially inexpensive source of short-term financing. Kabbage provides loan lines ranging between $2,000 to $250,000.

The criteria to apply for this credit line are very flexible – no personal credit rating is minimal, no one year’s company history and at least 50,000 dollars of yearly revenues (or 4,200 dollars a month for the previous three months).

That stated, you may fill out a quick online application to claim a credit line from Kabbage and then link your corresponding account—banking account, PayPal, Amazon, QuickBooks, etc. Kabbage will underwrite your application using these accounts. With this seamless procedure, you may get approval in a matter of minutes and determine your credit line eligibility. On the other side, if Kabbage has difficulty connecting to or confirming your accounts, the procedure may take longer.

Kabbage typically pays clients within one to three business days. Additionally, another advantage of this short-term finance provider is that you return your loan in automated monthly installments, which is not usual with short-term financing. Thus, a credit line from Kabbage is an excellent choice if you’re seeking for a quick, flexible, and accessible way to get liquid assets for your company, particularly if you’re unable to meet the requirements for other products.

7. Headway Capital Management

Lastly, Headway Capital offers short-term financing in the form of revolving credit lines. With periods ranging from 12 to 24 months and maximum borrowing amounts of $100,000, this line of credit is ideal for company owners that need immediate but continuous access to capital reserves within one to two business days.

Additionally, this line of credit has extremely low minimum requirements—you’ll need at least 6 months of company experience, a credit score of at least 560, and yearly sales of $50,000 or more to qualify.

Nevertheless, with APRs varying between 40% to 80% and a charge for each withdrawal, there is little question that a credit line from Headway Capital will be one of the most costly choices available to you.

Nonetheless, with a simple online application procedure and very liberal qualifying criteria, Headway Capital may be worth considering as a short-term financing source for fledgling companies or individuals with low personal credit.

Best Ways to Get Long Term Funding

Business incubator

The goal is to accelerate the development and profitability of a start-up by supporting education, mentoring and funding. Incubators are mostly a place for your company and support infrastructure. They may be located in a physical location dedicated to fostering entrepreneurial networking or function entirely online.

Evaluate carefully your choice to get financing from an incubator. It’s also a company in itself, frequently sponsored by private or municipal businesses that wish to see their investments returned.

Crowdfunding

Crowdfunding is usually a web-based initiative and a fun method for your company to raise money. This is not a tool for long-term financing, but to encourage and promote your first concept. The company is best utilized by start-ups (B2C).

Crowdfunding requires others to fund in your innovative idea. There are a variety of platforms available to help you choose one that is suitable for yourself and your company.

Micro-financing

Microfinancing is another excellent alternative for owners of start up enterprises that provide extra financial resources for individuals who qualify as low income borrowers. Microfinance alternatives are managed by financial institutions for community development (CDFIs). To explore this option of funding small businesses, you will need to provide proof of financial constraints and how they affect your capacity to operate and develop.

Business angels

Angel investors are private investors, often previous entrepreneurs or rich people, who invest in start-ups and small businesses in exchange for 10-20 percent ownership. Angel investors are a great method to obtain seed for a project, since during a project they can provide advise, direction and assistance.

Business overdrafts

Business overdrafts are a very quick method to establish a loan. When your balance reaches zero, you may make payments up to your bank’s so-called facility.

Overdraft is a helpful choice if your company includes seasonal operations where short-term cash flow problems may occur. If your company requires a permanent commercial credit function, this is probably the best option for you.

Pros of Long Term Funding

Small Monthly Installments: By obtaining a long-term company loan, large expenditures may be split down into manageable monthly payments.
Low interest rates: the highest credit rating borrower may benefit from interest rates below 5%, making it one of the most inexpensive loan choices.
Debt consolidation: Borrowers using long-term lending to consolidate or repay high-interest debt may save up to a thousand dollars throughout the lending.

Cons of Long Term Funding

Variable Interest Rates: Certain long-term loans have variable interest rates; thus, exercise caution. Although an interest rate may contribute to cutting costs when market rates decrease, rates could always rise and result in a more costly loan.
Overall costs: Overall costs may be very costly for a loan over a lifetime, particularly for any applicant without a stable financial reputation. Even for skilled purchasers, charges and interests may make use of additional money for the loan, so before you sign the contract it is essential to fully grasp the entire cost of the loan.
Collateral requirements: Collateral is needed for most long-term loans. In certain instances, the collateral is the object which the loan funds, such as apparatus, a car or property. In other cases, borrowers must deposit company assets, personal assets, provide a personal guarantee or accept a blanket lien before they disburse the loan.
High Credit Score Specifications: One of the most challenging credits to acquire may be a long term loan. To obtain the most inexpensive financing, there is a strong credit rating (with no bad elements in your credit history). Although some lenders may deal with lesser borrowers, interest rates may be much greater and conditions are not as advantageous.
Requirements for documentation: Because long-term lending is frequently used for extremely significant sums, creditors want to verify that all lenders can reimburse the lending. This implies that the application procedure involves a lot of documentation. Borrowers should be ready to handle the time to supply the creditor with all the paperwork required to pay for the loan.
Long-term approval process: The approval of a long-term corporate loan may take months, based on the lender – not perfect for a company that needs urgent financing.

Where To Find Long-Term Business Funding

1. The Small Business Administration (SBA)

Small company owners appreciate the Small Business Administration’s financing programs. The SBA establishes rules that keep borrowers’ interest rates reasonable while while providing lenders with a guarantee. SBA-approved creditors, or middlemen, are more inclined to lend money to small companies because of this assurance.

The Small Business Administration (SBA) provides many long-term lending programs. The 7(a) program, which provides up to $5 million for virtually every purpose with a maximum payback period of 10 years, is the most popular. The Community Advantage Credit, which offers the same low rates and terms to companies in disadvantaged areas, falls under the 7(a) umbrella, whereas the Veterans Advantage program provides long-term loan alternatives to service members and service members.

Another option for small-scale funding is the SBA Microloans program. Such loans offer up to $50,000 in funding and may be serviced over a six-year period.

Businesses who wish to upgrade their facilities or buy real estate may use 504 loans to get 40 percent of the money they need. The highest amount that may be given via this scheme is $5 million, with payback periods of up to 25 years.

Intermediary lenders, such as SBA-approved institutions, credit unions, nonprofit organizations, and Commercial Development Companies, may provide SBA loans.

2. Banks and credit unions

Because of low interest rates and advantageous conditions, banks are a preferred source for long-term company loans. Qualifying for these loans, however, may be challenging. Credit ratings must be extremely high, the review and approval procedure may take a long time, and lenders often have stringent criteria in regards to time in business and yearly income. Bank loans, on the other hand, are undoubtedly one of the most inexpensive debts on the market for businesses who qualify.

Credit unions also have extremely reasonable rates and conditions, and many companies choose to deal with them because they provide more personalized service. Credit unions may be a little more lenient with their criteria, however all clients should have a good credit rating and a consistent company history.

Businesses seeking these kinds of financing should begin by approaching banking institutions with whom they already have accounts.

3. Alternative Lenders

Alternative lenders provide advantages over banking institutions, credit unions, and SBA intermediaries, such as faster approval and financing and lower credit score criteria. Working with alternative lenders, however, has a number of disadvantages. One of the most significant disadvantages is higher interest rates. Another is a reduction in the maximum borrowing amount.

The majority of alternative lenders limit payback periods to five years. This may result in larger monthly payments based on the quantity borrowed, particularly at higher interest rates which can reach 30% in certain instances.

The return on investment, on the other hand, may be sufficient for a company to pursue one of these loans. These loans are ideal for companies that don’t satisfy the requirements of other lenders, such as credit rating, time in business, or yearly income.

Final Thoughts

Before you start looking for business loans, it is advisable to understand your options. This way, you can leverage on what works best for you. Do you have an existing business that needs to expand? Or are you a business starter who needs funds to kick-start the venture? There are different kinds of funding available per your need and situation. The best choices have been discussed in this report.