Alternatives to short-term business loans

The main points

Long-term loans, lines of credit, and SBA loans are alternatives to short-term loans.

Grants, business credit cards, peer-to-peer loans, and crowdfunding are also viable alternatives to short-term loans.

To choose the right loan option for your business, consider the term length, interest rate, requirements, terms and conditions.

If your company needs cash quickly to cover emergencies or seasonal expenses, a short-term business loan such as a line of credit, invoice financing, or a merchant cash advance can be a good source of funds. However, these loans may have higher interest rates and disadvantageous terms than other choices.

Here's a look at some popular alternatives to short-term business loans.

Long term loans

While short-term business loans usually have a repayment period of 18 to 24 months, long-term business loans can stretch from three to 10 years, which can help make monthly payments more accessible.

One of the main advantages of a long-term loan is that you can usually borrow larger amounts than with short-term loans. They also have lower monthly payments and lower interest rates, making it easier to fit the loan into your company's budget.

Lines of Credit

A trade line of credit gives your company flexible access to a pool of cash. You can withdraw money from this pool of funds as often as needed and several times over the life of the line of credit.

Banks, credit unions, and some alternative lenders offer long-term lines of credit. This includes Wells Fargo, which has lines of credit with long withdrawal periods and repayment periods. But these loans are usually reserved for good credit and strong commercial financial institutions.

Some lines of credit are accessible to borrowers with bad credit, but they have higher rates and shorter withdrawals and repayments. This is especially true of online loans that use factor rates or fees instead of interest rates to calculate the cost of the loan. These loans may also require weekly payments.

SBA loans

SBA loans are private loans insured by the US Small Business Administration. You can apply for it through banks, credit unions, and other lenders, but the SBA guarantees a certain percentage of the loan, which helps make it more affordable than other loans.

SBA offers many different loan programs. The two most common types of long-term SBA loans are 7(a) and 504.

For 7(a) loans, the terms depend on how you use the loan and other factors. Equipment, inventory and working capital loans have a maximum term of 10 years. The maximum term of the mortgage loans is 25 years.

These terms are the same as for the Community Advantage Loan, a pilot program that is set to end September 30, 2024. This loan program for low-income communities can include experienced business owners, start-ups, and low-to-middle-income businesses. Communities

The repayment period for the 504 loan program is 10, 20, or 25 years. These loans can be used to purchase buildings or land, construct new facilities, or purchase long-term machinery and equipment.

Alternative business loans

Alternative lenders provide several different forms of business loans. If you are having trouble getting a loan or want to consider alternatives, consider options such as:

Crowdfunding: An option to raise money from community members and supporters, sometimes in exchange for a reward or shares.

Peer-to-peer lending: A company or group of investors decides whether or not to lend to you. In general, it is more formal and the lending requirements are less stringent than a bank loan.

Microloans: Small loans of less than $50,000, usually given to underprivileged communities.

Business grants: These are usually awarded through the application process. Because grants do not have to be repaid, they are competitive and often have stringent requirements.

Business credit cards: While business credit cards usually have lower limits than traditional loans, they can come with benefits like cash back or travel miles. In some cases, you may have an introductory APR, and no interest is charged if your balance is paid off in full each month.

Bottom Line

Short-term business loans are one of the many ways companies can borrow money. If you're looking for more flexibility or need more time to pay off what you borrow, other options such as long-term loans or SBA loans may fit the bill.

Whatever type of loan you get, make sure you take the time to shop around and compare your options. Getting offers from multiple lenders will help you find the best deal.