Small Business Financing: Top Short-Term Funding Options You Should Know

by Small Business 10 January 2025

Top Short-Term Funding Options

Running a small firm might present unique difficulties, especially in terms of financial management. From meeting running expenses to seizing development prospects, companies usually need immediate access to funding. Here is where finding the top short term funding options become quite important. 

These financing options give small firms the tools and flexibility required to address immediate financial requirements, maintain seamless operations, and pursue expansion goals.

We will go over the best short-term financing choices accessible to small businesses in this article. We will also stress the practical and efficient nature of bridge loan solutions as a means of tackling temporary cash flow needs.

Understanding Short-Term Business Financing:

Short-term business financing refers to credit options or loans meant to give companies quick access to capital. Short-term funding choices usually have repayment periods ranging between a few weeks and a year, unlike long-term loans that could take years to pay off. For immediate financial needs including inventory purchases, payroll coverage, or cash flow gaps management, they are an ideal option.

Small businesses especially find these financing options appealing because of their faster approval times, more flexible requirements, and accessibility compared to traditional bank loans.

When Should You Use Short Term Funding?

So, when should you opt for any short-term funding option?

The answer is simple. If you are planning to cover unexpected expenses or want to make the most of any fleeting opportunity then short-term funding comes in handy. 

Having said that, every situation is unique. As a result, it is best to check out the advantages and disadvantages of short-term funding. It will help you decide what’s best for you.

The Advantages Of Short-Term Funding:

The advantages of short-term funding are as follows:

  1. Gets approved easily.
  2. The application process is simple
  3. Improves the credit score of the applicant.
  4. The money reaches the applicant’s account faster.

The Disadvantages Of Short-Term Funding:

The disadvantages of short-term funding are as follows:

  1. The repayment policies of short-term funding is relatively stricter. 
  2. The interest rates are higher at times.

What Are The Top Short Term Funding Options for Small Businesses?

While working on securing short-term funding, you will typically come across four major options. Your financial history and time frame will obviously impact which option best appeals to your needs. 

So, without wasting time, let’s check out these options.

1. Bridge Loans

Designed to “bridge the gap” between short-term funding needs and long-term financing or incoming revenue, a bridge loan is a temporary financing option that is popular among business owners. 

Bridge loans are commonly used by small firms covering immediate needs while they wait for a permanent loan, future cash flow, or a pending payment.

Why Bridge Loan Solutions Are Ideal for Small Businesses

For companies with time-sensitive opportunities or challenges, bridge loans can be particularly helpful. For example, a company owner who must buy supplies before the peak season but lacks immediate cash can rely on bridge loans to cover this need. In a similar vein, bridge loans can help companies who are waiting for client payments or are refinancing remain active.

2. Business Lines of Credit

Like a personal credit card, a corporate line of credit lets companies borrow up to a certain limit and spend it whenever they need it. The main benefit is flexibility; business owners can pay interest just on the used amount and withdraw money just as needed.

Benefits of Business Lines of Credit

  • Versatility: You may use it for anything you want, whether it’s buying supplies, paying employees, or launching a marketing campaign.
  • Revolving Credit: Once you pay back the borrowed money, it becomes accessible for use moving forward.
  • Fast Access: You can usually get your hands on the money the moment it’s approved.

3. Invoice Financing

Invoice financing, which is also called accounts receivable financing, enables companies to borrow funds based on their outstanding bills. For companies which have customer delayed payments yet need urgent funding to fulfill running expenses, this is a great alternative.

How It Works

The amount of overdue invoices can be advanced by a lender, usually up to 85%. The lender deducts a fee once the consumer pays the invoice, and the firm gets the remaining balance.

Key Advantages of Invoice Financing

  • Improves Cash Flow: Guarantees consistent cash flow even in cases of customer delays
  • No Collateral Needed: The unpaid invoices are used as security for the loan, thus no collateral is needed.
  • Quick Approval: Typically approved far more quickly than more conventional loan applications.

4. Merchant Cash Advances (MCAs)

A merchant cash advance is a funding source whereby companies get a big sum upfront in return for a percentage of future sales. Retail companies and restaurants with consistent credit card sales especially prefer this kind of funding.

Why Businesses Use Merchant Cash Advances?

  • Fast Approval: Often approved within 24-48 hours.
  • Flexible Repayment: Payments adjust based on sales volume, making it easier to manage during slow periods.
  • No Fixed Monthly Payments: Payments are deducted automatically from daily sales.

Drawbacks to Consider

Although MCAs are handy compared to conventional loans, they do come with higher expenses. Before making a commitment, business owners should give a lot of thought to the costs and terms of repayment.

The Role of Bridge Loan Solutions in Business Success

Because of their versatility and speed, bridge loans stand out among short-term financing options. They particularly help companies that are dealing with unanticipated challenges or facing transitions. A retail establishment that has to resupply goods for an upcoming Christmas season, for instance, can swiftly obtain the money with a bridge loan without interfering with business operations.

Businesses can gain from customized bridge loan solutions that meet their particular financial needs by working with reliable partners.

Barsha Bhattacharya is a senior content writing executive. As a marketing enthusiast and professional for the past 4 years, writing is new to Barsha. And she is loving every bit of it. Her niches are marketing, lifestyle, wellness, travel and entertainment. Apart from writing, Barsha loves to travel, binge-watch, research conspiracy theories, Instagram and overthink.

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