Running a business often involves unexpected expenses or temporary cash flow gaps, and you might not always have the funds to readily cover them. Thankfully, there are short-term business loans.

Short-term business loans provide a quick injection of funds to bridge cash flow shortfalls and keep your business running smoothly. Unlike long-term loans used for major purchases or expansion, short-term financing focuses on immediate needs. These loans can be a great stopgap for keeping things running smoothly during rough patches. 

What is a Short-Term Business Loan?

A short-term business loan is a specific type of financing designed to address your business’s immediate needs. Unlike long-term loans that can stretch over several years, short-term loans are meant to be repaid within a shorter timeframe, typically ranging from three months to two years. These loans are characterized by:

  • Smaller loan amounts: Compared to long-term loans, short-term financing offers smaller sums, usually ranging from a few thousand dollars to around $250,000.
  • Faster funding: Short-term lenders often prioritize speed, with some offering approvals and funding within days of application.
  • Unsecured vs. Secured: Short-term loans are often unsecured, meaning they don’t require collateral. However, unsecured loans may come with higher interest rates. 

For many businesses, short-term business loans are a saving grace simply based on the nature of their industry or sales cycle. For example, during the spring season, a landscaping company may experience a surge in demand for yard cleanups and plantings. They can utilize a short-term loan to cover the upfront costs of additional mulch, flowers, and temporary staff to handle the increased workload. The loan would be repaid throughout the busy season as they receive payments from clients.

Types of Short-Term Business Loans

The concept of a short-term business loan encompasses a variety of loan types. Depending on the nature of your business or your need for capital, you might find yourself applying for any of the following:

  • Term Loans: These are the most common type of short-term loan, providing a lump sum of cash that you repay with interest over a fixed period, typically ranging from a few months to a few years.
  • Lines of Credit: Similar to a credit card, a line of credit offers access to a pre-approved credit limit that you can tap into as needed. You only pay interest on the amount you borrow, offering greater flexibility compared to term loans.
  • Merchant Cash Advances (MCAs): This alternative financing option allows you to receive an upfront advance on your future sales receipts. While convenient, MCAs often come with higher fees compared to traditional loans.
  • Invoice Factoring: With invoice factoring, you sell your outstanding invoices to a factoring company at a discount. This allows you to access immediate cash but comes with factoring fees which can vary depending on the invoice amount and terms.

Each type of short-term loan has its own advantages and disadvantages. Choosing the right option depends on your repayment capabilities and risk tolerance. The next section will explore the pros and cons of utilizing short-term business loans.

How Short-Term Business Loans Work

Getting a short-term business loan is typically a streamlined process. Here’s a quick breakdown of what small business owners can expect as they seek to apply for short-term business financing:

  • Loan Application: Prepare a loan application package that typically includes your business plan, financial statements, and tax returns. Additionally, lenders may request personal credit scores of business owners or guarantors.
  • Documentation Review: The lender will thoroughly assess your application materials to evaluate your business’s financial health and creditworthiness.
  • Loan Approval and Terms: Upon approval, the lender will present the loan offer with details like the loan amount, interest rate, repayment schedule, and any potential collateral requirements (if necessary).

Be aware that the terms of a short-term business loan can vary significantly across lenders and situations. Before signing any loan documentation, carefully review the terms and conditions of your loan! Focus specifically on these important criteria:

  • Interest Rates: Short-term loans can come with varying interest rates depending on your creditworthiness, loan type, and lender. Be prepared for potentially higher interest rates compared to long-term loans due to the shorter repayment period and associated risk for the lender.
  • Repayment Periods: As mentioned, short-term loans boast faster repayment schedules. This translates to higher monthly payments compared to long-term loans with extended repayment terms. Some short-term loans might even require daily or weekly repayments.
  • Collateral Requirements: Depending on the lender and loan type, collateral might be required to secure the loan. This could be business assets, equipment, or even personal property of the business owner(s).

If you can confidently pay back the loan amount on-time, before the end of the term, without hampering your business, you can feel confident signing the loan documents. If, however, you’ll struggle to repay the loan or it’ll negatively impact your cash flow even further during the loan term, it might be wise to weigh other business financing options. 

The Advantages and Disadvantages of Short-Term Loans

Short-term business loans offer a valuable resource for businesses facing temporary cash flow gaps or requiring immediate funding. However, it’s crucial to weigh both the advantages and disadvantages before taking the plunge.


  • Quick Access to Funds: Compared to long-term loans with lengthy application processes, short-term loans provide a faster route to obtaining the capital you need to keep your business running smoothly.
  • Flexible Use: Short-term loans can address various business needs, from managing seasonal fluctuations to covering unexpected expenses.
  • Potentially Lower Interest Rates: While interest rates can vary, lines of credit, a type of short-term loan, might offer lower interest rates on the amount you actually borrow compared to traditional term loans requiring interest on the entire loan amount.


  • Shorter Repayment Periods: The rapid turnaround on loan funding comes with the pressure of faster repayment schedules. This can translate to higher monthly payments that might strain your cash flow if not managed carefully.
  • Can be Expensive: Short-term loans often come with higher Annual Percentage Rates (APRs) due to the shorter repayment period and increased risk for the lender. Carefully compare interest rates and fees from different lenders before committing.
  • Potential for Debt Burden if Not Managed Carefully: Falling behind on repayments can quickly snowball into a significant debt burden. Ensure you have a clear plan for managing the loan alongside your existing financial obligations.

By understanding both the advantages and disadvantages, you can make an informed decision about whether a short-term business loan is the right fit for your specific financial situation. 

Apply for a Short-Term Business Loan

Short-term business loans offer a valuable tool for businesses facing temporary cash flow shortfalls or requiring immediate funding. They provide quick access to capital, boast flexible use for various needs, and can potentially offer lower interest rates for lines of credit. However, it’s crucial to understand the downsides, including shorter repayment periods, potentially high APRs, and the risk of accumulating debt if not managed responsibly.

If your business needs a quick capital infusion to help smooth out cash flow irregularities and provide a buffer against uncertainty, NorthOne is ready to help. In as little as two minutes, business account holders can apply for short-term business loans from $10K to $250K! Apply for a short-term business loan today and see how easy it is to manage your finances with NorthOne!