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Kacie Goff
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.
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Emily Maracle
Emily Maracle is a small business loans editor for Bankrate.com. She is passionate about creating high-quality content to help educate and make complex topics accessible to all readers.
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Maybe your business ran into an unexpected obstacle. Or maybe it’s growing so fast that you need to bring on new employees. Business owners can face many situations where a little extra money can go a long way.
That’s where short-term business loans can help. Commonly issued for between $50,000 and $100,000 and paid back in two years or less, these loans can be a game-changing tool for your company.
If you’re considering a short-term business loan, it’s important to know the costs. Let’s look at the factors determining how much a short-term business loan will cost.
Several factors impact the cost of a short-term business loan. Before signing a loan agreement, be sure you understand the interest rate, fees and terms the lender charges.
Interest is the cost of taking out a loan, expressed as a percentage. What is the interest rate on a short-term business loan? It varies. Even average business loan rates shift depending on your loan type. For example, the rates for a term loan won’t be the same as the interest rates for a business line of credit. Factors that impact interest rates are:
Even if your lender doesn’t require collateral, you will likely have to sign a personal guarantee. This means that if your business can’t repay the loan, you agree to step in personally. It also means the lender could seize your personal assets in the event of a default.
As you’re comparing short-term small business loan options, you might see the cost of the loan expressed in different ways:
Interest and APR are the most common ways to express the cost of a loan. Factor rates are typically found with accessible short-term loans like merchant cash advances and invoice factoring.
Factor rates look smaller than interest rates and APR but can cost more than you think. Convert any factor rates to interest rates to ensure you’re comparing apples to apples when evaluating your short-term business loan options. This will make it easier for you to see which loan is more affordable.
When reviewing short-term business loan costs, you’ll need to watch out for short-term business loan fees.
These vary by lender, but you should absolutely factor them into your calculations when determining if you can afford the loan. You can ask your lender if there are any fees and how much they cost, but keep an eye out for:
All of these are fairly similar, covering the cost for the lender to draw up your loan and issue you the funds.
Bankrate insightsWhen it comes to getting a short-term loan for business, the repayment window is usually fairly short. Repayment terms of six months to a year are common, but terms may go up to 24 months in some cases. In other words, this debt shouldn’t stick around for long.
If you have a loan with an interest rate, paying it off even faster can help you avoid interest accrual, which adds to the cost of your loan. Check your loan terms first because some lenders charge a penalty fee if you pay off your debt early.
If you have a factor rate, fast repayment won’t necessarily save you money. Remember, the factor rate is set rather than accruing like interest. That said, some lenders offer an early payment discount that might save you a little bit. Read your loan terms to find out if paying your debt off early could save you money.
Getting short-term financing isn’t the right choice for every business. You may want to explore these alternatives to find the best option for you.
The best short-term business loans can help your business seize growth opportunities or weather challenges. But this financing option has benefits and drawbacks, such as higher rates and shorter repayment periods than other loan types. Make sure this is the right type of loan for you before you apply.
You should consider a short-term loan if your business needs money now and can repay it quickly. Usually, you’ll be able to borrow somewhere between $50,000 and $100,000, and you’ll often need to repay it in a year or less, although some short-term loans offer a term of up to 24 months.
Yes. Getting a short-term business loan with bad credit is possible, but it will come with high rates and fees. If you have time, it pays to build your credit and improve your chances of approval so you can find an affordable option.
Yes, they’re legal. But be advised that they have less regulation because they’re considered an advance on future receivables, not a loan. That means that as a borrower, you should do your due diligence before working with any company that offers merchant cash advances.
Arrow Right Personal Finance Contributor
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.
