Alternatives to short-term business loans

Key takeaways

  • Alternatives to short-term business loans include long-term loans, lines of credit and SBA loans

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

  • To choose the right lending option for your business, consider term lengths, interest rates, requirements, terms and conditions

If your company needs fast cash to cover emergencies or seasonal expenses, a short-term business loan — like a term loan, invoice financing or merchant cash advance — can be a good source of funds.

However, these loans may carry higher interest rates and fees to offset the fast funding and potentially lenient requirements to apply. And with terms typically lasting only two years or less, you often need to make higher payments on a more aggressive repayment schedule than longer-term loans.

To help you gain more favorable terms on your business loan, consider some common alternatives to short-term business loans.

Long-term loans

Long-term business loans can offer repayment timelines anywhere from three to 10 years, which can help make monthly payments more manageable. By contrast, short-term business loans usually have repayment periods of 3 to 24 months.

One major benefit of a long-term loan is that you can usually borrow larger loan amounts. This is true because you can stretch those payments across a longer time period than with short-term loans. They also have lower monthly payments and tend to have lower interest rates, which can make it easier to fit the loan into your company’s budget.


Bankrate tip

Some of the best business loans include large banks like Bank of America and Wells Fargo. These offer long-term loans for established businesses, and they may be able to quote you lower rates than many short-term lenders.

Lines of credit

A business line of credit gives your company flexible access to a pool of cash. You can draw money from the available credit whenever you need to, and you can borrow multiple times over the life of the line of credit.

Banks, credit unions and some alternative lenders usually offer long-term lines of credit. For example, Wells Fargo has lines of credit with long draw and repayment periods. These loans are typically reserved for established businesses with good credit and strong business financials.

Some lines of credit are accessible to borrowers with bad credit, but these may have higher rates and short repayment periods. These loans may also require weekly payments. Lines of credit can also have high borrowing costs when they use factor rates or fees instead of interest rates.


Bankrate insight

Check out our guide to see the average business line of credit rates top lenders charge.

SBA loans

SBA loans are special loans insured by the U.S. Small Business Administration. You apply for them through banks, credit unions and other lenders. The SBA then guarantees a certain percentage of the loan, which helps make it more affordable than other business loans.

The SBA offers several loan programs. The two most popular types of long-term SBA loans are the 7(a) and 504.

For 7(a) loans, terms depend on how you use the loan and other factors. The maximum term for equipment, inventory and working capital loans is 10 years, while real estate loans go up to 25 years. The SBA also offers lines of credit as part of the 7(a) program. These work the same as lines of credit offered by banks and other lenders, but they are backed by the SBA, just like its term loans. This means potentially lower rates — but a much more competitive application process.

The 504 loan program has repayment terms of 10, 20 or 25 years. These loans can be used to buy buildings or land, build new facilities or purchase long-term machinery and equipment.


Bankrate insight

The SBA’s weekly lending report shows that for the 2023 fiscal year:

  • The SBA approved 57,362 7(a) loans vs. 5,924 504 loans.

  • The average loan size is $479,685 for the SBA 7(a) loan vs. $1,083,622 for the 504 loan.

  • Most 7(a) loans (27%) are for $50,000 or less.

  • Most 504 loans (48.1%) are between $500,000 and $2 million.

  • 83.1% of SBA 7(a) loans and 82.5% of 504 loans are approved for urban areas.

  • Most SBA 7(a) loans (53.1%) and 504 loans (79.6%) go to businesses more than two years old.

Alternative business loans

There are many different types of business loans available from alternative lenders.
If a more traditional business loan is outside your reach but you don’t want to face the high cost of a short-term loan, consider one of these options.

  • Crowdfunding: An option for raising money from community members and supporters, sometimes in exchange for a reward or equity.

  • Peer-to-peer lending: A company or group of investors decides whether to loan you money. Typically, it’s more informal and lending requirements are less stringent than a bank loan.

  • Microloans: Smaller loans, typically offered to underserved communities.

  • Business grants: Usually awarded through an application process. Since grants don’t have to be repaid, they are competitive and often have strict requirements.

  • Business credit cards: While business credit card limits are typically lower 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 in full every month. They’re also a much better option for helping you build business credit.

Bottom line

Short-term business loans can help businesses who don’t qualify for other types of loans or who are looking to pay off their loan quickly. But if you choose an alternative to a short-term loan, you can often get longer repayment terms to stretch out payments. You can also find loans with lower interest rates and fees, lowering the overall cost of the loan.

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

Frequently asked questions about business loan alternatives

  • What is a short-term business loan?A short-term business loan is a loan that you must pay back within a short period of time, typically less than 24 months.

  • Who should get a short-term business loan?Short-term business loans are good for companies that need to borrow relatively small amounts of money quickly. For example, a small business may need cash for an emergency or to help with seasonal changes that can disrupt cash flow. They’re not intended for larger, long-term investments.

  • What are the disadvantages of short-term business loans?A drawback of short-term business loans is that they have smaller maximum loan amounts. They can also have high interest rates and fees.