How Much Credit I Need to Have If I Need a Short-Term Loan for My Business

Edward D. - 2020-02-14T22:00:00.000Z

Businesses face all different sorts of challenges, chief among them capitalizing new projects, satisfying payrolls, making investments, and more. Fortunately, there is a lending product designed to meet these business-specific needs.

A short-term business loan is a loan advanced to a business with a maturity of one year or less.

Businesses may use funds to cater to temporary cash-flow deficiencies or handle pressing obligations like paying suppliers. Businesses often borrow via short-term loans to meet more urgent financial needs when they arise.

For instance, short-term business loans are commonly sought by seasonal businesses that require inventory financing before the beginning of the holiday season.

Raising capital to satisfy expenses or project undertakings is another major reason a business may require a short-term loan, still, before examining if a short-term loan is appropriate, its critical to understand if you qualify.

Qualifying for a Short-Term Business Loan

When applying for short-term loans, whether from banks, credit unions, or other lenders, it is important to have documentation handy to help lenders build an accurate profile. Lenders will typically require a payment history record, income statement, the cash flow history for the last 3-5 years, as well as a credit score.

The credit score is an important component for judging the creditworthiness of the borrower. Borrowers with excellent credit score will ultimately find it easier to secure short-term business loans at the most competitive rates.

Knowing where you stand on the credit spectrum can help determine rates, but also suitability of a short-term business loan.

750+: Given this is a prime score, many lenders will offer a loan for scores of 750 or above. Accordingly, borrowers can access SBA, business lines of credit, and traditional bank loans.
700+: A credit score of between 700 and 749 will still qualify the borrower for some of the best short-term rates in the market including SBA loans and bank loans.
640+: Lenders consider this credit score good but not excellent. The borrower may be able to get a short-term business loan, but it will be much more difficult or possibly feature higher rates.
600+: Many banks will not offer loans with a score of less than 640. However, certain non-bank lenders will offer financing at a higher interest rate or in exchange for collateralizing the loan.