What a short-term business loan actually is
A short-term business loan is a lump sum of capital repaid over 3 to 24 months. Most are structured with daily or weekly ACH debits, not the monthly payment schedule of a traditional term loan. Amounts run $5,000 to $500,000 typical, and the application-to-funded timeline is 24 to 72 hours for clean files. Most short-term loans are unsecured (no specific collateral pledged) but still require a personal guarantee. The lender holds a UCC-1 against your business receivables.
This is a structurally distinct product from your standard 1-5 year business term loan. The shorter timeline means lighter underwriting, faster funding, and higher cost. It is also distinct from a merchant cash advance: short-term loans use APR-based pricing and report to business credit bureaus, while MCAs use factor rates and do not report.
Short-term loan vs regular term loan vs MCA
Compared to an MCA (4-24 month factor-rate product), the short-term loan looks similar but works differently:
When a short-term loan wins
You have a clear short-payback use
Inventory load before a peak season, marketing campaign with measurable ROI in under 6 months, opportunity buy on a supplier discount. The use generates revenue within the term, so the daily/weekly debit gets covered by the new cash flow.
You're building business credit
Short-term loans report to business credit bureaus (D&B, Experian Business, Equifax Business). Responsible on-time payment builds the business credit history that opens better products later. MCAs don't report.
You might pay off early
Most short-term loans give you a real prepayment savings (you stop paying interest on the remaining balance). MCAs usually do not, the full factor rate is locked in regardless of early payoff. If there's a chance of paying early, short-term loan wins.
You need over $250K
Most MCAs cap around $250K-$500K. Short-term loans go higher. For files over $300K with strong credit and revenue, short-term loan pricing usually beats MCA pricing at the same amount.
When a short-term loan loses
Use of funds has 12+ month payback
Major renovation, hiring ramp, real estate. The daily or weekly debit hits before the investment pays off. Use a regular term loan with monthly payments and a longer amortization.
Your FICO is under 580
Most short-term loan lenders draw the line at 580. MCA is the more accessible product at 500-580 FICO because it underwrites primarily on bank deposits.
Revenue is unpredictable or seasonal
A fixed daily debit during slow months is brutal on cash flow. A line of credit that draws only when you need it is dramatically cheaper for seasonal patterns.
You can wait 30+ days
If speed isn't critical, an SBA Express loan or a longer-term loan at 10-18% APR will cost dramatically less than a short-term loan at 25-40% APR equivalent. The speed is the premium you pay.
Typical rates and qualifying thresholds
By term length
- 3-6 month term: 25-50% APR equivalent. Highest cost because lender has least time to recover. Best for files with very short payback or no other option.
- 6-12 month term: 18-40% APR. The middle range and the most common term we see.
- 12-18 month term: 14-30% APR. Lower-cost zone if you can support a longer commitment.
- 18-24 month term: 12-25% APR. Bordering on regular term loan rates. The lender has more time to recover so pricing improves.
By file strength
- Best rates (12-20% APR): 700+ FICO, 24+ months in business, $50K+ monthly revenue, clean bank statements.
- Standard rates (20-30% APR): 620-700 FICO, 12-24 months, $20-50K monthly revenue, occasional NSF acceptable.
- Higher rates (30-50% APR equivalent): 580-620 FICO, 6-12 months, $10-20K monthly revenue, recent credit issues.
What you need to qualify
- FICO: 580+ standard. 550+ at specialty lenders with strong revenue compensating.
- Time in business: 6+ months. 12+ months opens better rates.
- Monthly revenue: $10,000+ floor. $25,000+ sweet spot. $50,000+ opens the best terms.
- Bank statements: 3-6 months. Lender wants to see deposit count above 5/month, average daily balance above $2,000, NSFs below 5 in 90 days.
- Personal guarantee: Required for almost all short-term loans.
- No active bankruptcy. Recent defaults on prior business debt usually disqualify for 12+ months.
How the process works
- 2-minute application. Business basics, owner info, requested amount. Soft credit pull.
- Send bank statements. Last 3-6 months as PDFs from your online banking.
- Offers in 24-48 hours. 2-4 specialty short-term lenders return offers. We present the strongest.
- Sign + fund. Electronic signature. Wire arrives same business day after signing.
The honest math on a short-term loan
A $75,000 short-term loan at 25% APR equivalent over 12 months with daily payments looks like this:
- Daily debit: about $370 per business day (250 business days/year)
- Total repaid: about $93,750
- Total interest cost: $18,750
- Effective monthly cash burn: ~$7,800
That math works when you used the $75K to generate at least $93,750 in incremental revenue within 12 months, ideally faster. If the use doesn't produce that much revenue that quickly, you're paying for the speed and convenience but losing on total cost. Common ways the math goes wrong: using short-term loans for long-payback projects, stacking on top of existing MCAs, or borrowing during a revenue decline rather than ahead of growth.