Short Term Line of Credit
Draw, repay, and repeat with flexible financing over a short term schedule
A short-term lines of credit are flexible financing tools that allow businesses to borrow funds, up to a certain limit, on an as-needed basis to cover short-term expenses. It’s a beneficial resource for managing cash flow and unexpected costs.
As a financial lifeline, a short-term line of credit offers businesses the ability to borrow only the money they need, providing financial flexibility without committing to a long-term loan. Businesses can access this line of credit to cover expenses such as payroll, inventory, or unexpected bills. It becomes particularly useful during periods of irregular cash flow, seasonal changes, or to finance unexpected growth opportunities.
Unlike traditional loans, a short-term line of credit does not require businesses to use the entire available limit. The flexibility to use only what is needed and pay interest only on the borrowed amount distinguishes it from other financing options. Moreover, once the borrowed amount is repaid, the line of credit is replenished, making it a revolving source of funds.
What Is a Short-Term Line of Credit?
A short-term business line of credit is a financial instrument that allows businesses to borrow money up to a specified limit for short-term needs, providing flexibility and cash flow management.
One of the key advantages of a short-term line of credit is its flexibility. Whether it’s for managing unexpected expenses, addressing cash flow gaps, or seizing growth opportunities, businesses can swiftly access funds without going through a new loan application process. Once the borrowed funds are repaid, the line of credit is replenished and can be used again.
Businesses should be aware that short-term lines of credit often come with higher interest rates compared to long-term loans. This form of credit is best suited for addressing temporary or short-term financial needs rather than long-term investment or expansion.
Pros and Cons of a Short-Term Line of Credit
| Pros | Cons |
| Flexibility: Unlike traditional loans, you can draw from your short-term line of credit as needed, only using and paying interest on what you need. | Higher Interest Rates: Short-term lines of credit often come with higher interest rates compared to long-term financing options. |
| Cash Flow Management: Provides a cushion for businesses to manage short-term operational expenses and unforeseen costs. | Potential for Overborrowing: The ease of access to funds might lead to overborrowing, potentially creating a debt cycle. |
| Revolving Credit: Once you repay what you’ve borrowed, the original amount is available again for use. | Fees: There can be additional costs involved, such as maintenance fees or transaction fees each time you draw from the line of credit. |
| Fast Access to Funds: The application process is generally quick, providing speedy access to capital when needed. | Variable Interest Rates: Rates can fluctuate over time, which may increase the total cost of borrowing if rates rise significantly. |
Understanding Short-Term Line of Credit Rates & Terms
Short-term line of credit loans come with a variety of features and terms that can vary significantly based on the lender and the specific financial situation of the borrower. Here are the key aspects to consider:
- Loan Amounts: The borrowing limit for a short-term line of credit can range widely, from a few thousand dollars to several million. This limit is typically determined by the lender based on your business’s creditworthiness, financial health, and cash flow.
- Interest Rates: The interest rates for short-term lines of credit are generally higher compared to long-term loans, often ranging between 5% to 20%. However, you only pay interest on the funds you draw, not on the total credit line.
- Repayment Schedules: Repayment schedules for short-term lines of credit can be flexible. Some require monthly payments, while others might be on a more irregular basis. Once the borrowed amount is repaid, the line of credit is typically replenished.
- Fees and Charges: Besides interest rates, lenders might charge additional fees. Common ones include origination fees, maintenance fees, or draw fees each time you use the line of credit. These costs can add up, so it’s crucial to understand all associated fees before agreeing to the terms.
Each lender might offer slightly different terms for their short-term lines of credit, so it’s important for businesses to carefully compare options.
Short-Term Line of Credit: Where to Use?
The best ways to use a line of credit short-term loan include:
- Managing Seasonal Variations: Businesses with seasonal fluctuations in cash flow, such as retail businesses that see increased sales during the holiday season, can use a short-term line of credit to cover operating costs during off-peak times.
- Emergency Funds: Unforeseen expenses such as equipment failure or urgent repairs can be covered using a short-term line of credit, providing immediate financial relief.
- Inventory Purchasing: Businesses that need to buy inventory in advance of a sales period can use a short-term line of credit to finance the purchase, then repay the amount as the inventory is sold.
- Cash Flow Gaps: If there’s a delay in accounts receivable, a short-term line of credit can bridge the gap, allowing businesses to meet their financial obligations without disruption.
- Taking Advantage of Opportunities: If a unique growth opportunity arises, such as a bulk purchase discount from a supplier, a short-term line of credit can provide the necessary funds swiftly.
- Payroll: In times when cash flow might be tight, a short-term line of credit can ensure employees are paid on time, maintaining morale and productivity.
How to Qualify for a Short-Term Line of Credit
1+ Year in Business
$500,000+ in Annual Revenue
600+ FICO Score
Qualifications Explained
To qualify for a short-term line of credit, businesses must meet the following criteria:
- Credit Score: Generally, lenders prefer applicants with a good credit score, often in the range of 600-700 or higher. The credit score demonstrates the borrower’s history of repaying debts and plays a key role in the lender’s decision.
- Business Revenue: Lenders usually look at the annual revenue of your business to assess your ability to repay the borrowed funds. The required revenue can vary, but many lenders look for businesses with revenues in the hundreds of thousands of dollars.
- Business Age: Many lenders require businesses to have been operational for a minimum period, often 1-2 years, before they qualify for a short-term line of credit.
- Business Financials: Lenders may request financial statements, tax returns, and bank statements to assess the financial health of the business. A strong cash flow and profitability can increase the likelihood of approval.
- Industry: Some lenders may have restrictions or preferences based on the industry of your business, as some sectors may be deemed riskier than others.
Short Term Line of Credit: How to Apply?
Applying for a short-term line of credit with National Business Capital (NBC) involves a streamlined process designed to match businesses with the most competitive offers within their extensive lender marketplace. Here’s a step-by-step guide to their application process:
- Complete the Online Application: The first step is to complete NBC’s short online application. This process is designed to be quick and easy, typically taking less than five minutes.
- Connect with a Lending Specialist: Once the online application is submitted, you’ll be connected with an NBC lending specialist. They will assist you in preparing your application to ensure it’s as strong as possible.
- Prepare Your Application: With the guidance of the lending specialist, gather and prepare all necessary financial documents. This might include bank statements, financial statements, and information about your business and industry.
- Submission to Lenders: NBC will submit your application to multiple lenders within their marketplace. This broad submission increases your chances of approval and helps secure the most competitive interest rates and terms.
- Review Offers: NBC will present you with the best offers from their lender marketplace. Their team will provide ROI guidance and strategies to help you select the most beneficial offer for your business.
- Establish a Financing Relationship: After the initial transaction, NBC aims to establish a long-term financing relationship with you, ready to assist with future capital needs as your business grows and evolves.
Applying for a short-term line of credit with NBC not only provides access to funds but also saves you time and stress, as their team handles the application process and offers strategic guidance to maximize the value of your financing.
Frequently Asked Questions
How quickly can I access the funds once approved for a short-term line of credit?
The timeframe can vary depending on the lender, but generally, once approved for a short-term line of credit, you can access the funds within a few business days. Some lenders might even offer same-day access for approved applicants.
Can I pay off a short-term line of credit early without any penalties?
Many lenders allow early repayment of a short-term line of credit without penalties, but it’s important to confirm this with your specific lender. Early repayment can save on interest costs, but always review your loan agreement for any prepayment conditions or fees.
Can startups or new businesses qualify for a short-term line of credit?
While many lenders require businesses to have been operational for a certain period (often 1-2 years), some lenders may offer short-term lines of credit to startups or newer businesses. Eligibility will likely depend on factors such as the business owner’s credit score and the startup’s financial projections.
Are there any restrictions on how I can use the funds from a short-term line of credit?
Generally, funds from a short-term line of credit can be used for any business-related expenses, including inventory purchases, emergency costs, cash flow management, or growth opportunities. However, it’s always best to confirm with your lender for any specific restrictions.
