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Financial Planning

How much does a short-term business loan cost?

May 2, 2025 9 Min Read
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How much does a short-term business loan cost?
Apron business owner looks over the paperwork

pixelseffect/getTyimages;Illustrated by Hunter Newton/Bankrate

Short-term business loans can help you cover gaps in your business’s financing, pay emergency fees, and jump on opportunities to grow in the short term.

Short-term business loans can be a game changer, but it’s important to consider how you pay in a long (and short) period. Below are the factors, fees and fees you can learn when deciding how much a short-term business loan will cost.

Short-term business loan costs

Several factors affect the cost of short-term business loans. Before signing a loan agreement, understand the lender’s fees, fees and terms.

interest rate

Interest is the cost of taking away the loan, expressed as a percentage. What is the interest rate for a short-term business loan? That’s different. Even the average business loan fee will vary depending on the type of loan. For example, the fees for term loans are not the same as the interest rates on the business line. Factors that affect interest rates are as follows:

  • Lender. You can get a short-term loan from a traditional bank or credit union, or you can get a loan from an online lender. Online lenders tend to provide more generous eligibility criteria for business owners such as poor credit. However, they may have higher interest rates, higher rates, or personal guarantee requirements.
  • Loan type. Some types of loans tend to offer lower interest rates than others. For example, seller cash advances tend to charge higher fees for borrowing, while term loans offer lower fees.
  • Credit score. The lender will also review your credit score and financial history to determine whether you are high or low risk for lending. If your credit score is low, they may charge a higher fee or refuse a loan. Subprime borrowers can consider a bad credit business loan as they are most likely to be approved.
  • Business revenue and time. Your lender will use this to determine how dangerous it is to lend to you. The higher your business revenue, the higher your borrowing and the higher interest rates will be provided. Also, long hours in business indicate that your business is running smoothly for a long time and you can rely on what you’ve borrowed for sure.
  • collateral. Most lenders seek collateral, an asset used to protect loans such as equipment and real estate. If the loan defaults without properly managing it, the lender can seize the assets to pay off the loan. Though secured loans often offer low interest rates, you may need an unsecured business loan to protect your assets.
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Interest rates and factor rates

Because we are comparing short-term small business loan options, the cost of the loan may be expressed in a variety of ways.

  • interest rate. The percentage of interest earned on your loan.
  • Annual Rate (APR). The total cost of borrowing money throughout the year, including interest and fees, is expressed as a percentage.
  • Factor rate. The cost of a loan is expressed as a decimal diagram (usually 1.1-1.5). To determine the borrowing cost, multiply the total amount of the coefficient by the loan amount and subtract the loan balance. For example, a coefficient of 1.4 for a loan of $100,000 means that you will need to pay back a total of $140,000 with a borrowing cost of $40,000. Unlike interest, factor rates do not accrue over time – they are fixed for the life of the loan.

Interest and APR are the most common ways to express the cost of a loan. Factor rates are usually found on accessible short-term loans such as cash advances and invoice factoring from sellers.

Factor rates may appear smaller than interest rates and APRs, but they can be higher than you think. When evaluating short-term business loan options, you convert the factor rate into interest rates to make sure you are comparing apples to apples. This makes it easy to see which loans are more affordable.

Short-term business loan fees

When checking short-term business loan costs, you should be aware of short-term business loan fees.

These vary from lender to lender, but you should definitely consider them in your calculations when determining whether you can afford a loan. You can ask if your lender will cost you, but be aware of the following:

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  • Management fee
  • Application fee
  • Late fee
  • Origination fee
  • Underwriting fee
  • Processing fee
  • Packaging fee

All of these are pretty similar, covering the cost of lenders creating your loan and issuing funds.

Repayment terms

When it comes to getting a short-term loan for your business, the repayment window is usually quite short. Repayment terms for six months to one year are common, but in some cases the conditions may be 24 months. In other words, this debt should not last long.

If you have an interest rate loan, paying it down even faster will help you avoid interest accruals that will increase the cost of your loan. Please check the terms of the loan first, as some lenders will charge a penalty fee if they pay off their debts early.

If you have a coefficient, a quick repayment won’t necessarily save you money. Remember that factor rates are set rather than gaining like interest. That said, some lenders offer early payment discounts that save you a little. Read the terms of the loan and see if you can save money by paying your debt early.

Alternatives for short-term business loans

Getting short-term funding is not the right choice for every business. You may want to explore these options and find the best option.

  • Long-term loans. While short-term loans pay off quickly, long-term loans help reduce monthly payments, often giving you lower interest rates than short-term loans.
  • Trust line. You can choose to obtain revolving credits. This means that you can reuse the loan after you have repaid your initial withdrawal of your funds. You can use a credit line to find both short and long term conditions.
  • SBA loan. A US SME administrator can guarantee the loan with loan terms up to 10 or 25 years for a real estate loan. You may still be able to qualify for this loan even if you are not eligible for traditional funding.
  • Business grants. Business grants provide a way to provide funding without repayment. This type of fundraising is competitive and will receive awards for a strong business plan and a business overview.
  • Business credit card. Business credit cards allow businesses to receive funds that can be reused if necessary. These typically do not require a minimum revenue, making them more accessible to startups and small businesses.
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Conclusion

The best short-term business loans will help your business seize growth opportunities and weather challenges. Please note that this financing option has advantages and disadvantages, including higher fees and shorter repayment periods than other loan types. Before applying, make sure this is the right type of loan.

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