What Is Short-Term Financing?
Short-term financing refers to business or personal loans that have a shorter-than-average timespan for repaying the loan, typically one year or less. Some short-term loans have even shorter terms, such as 90 to 120 days.
Short-term financing is designed to help borrowers finance for an immediate need without the burden of long-term financing, though short-term loans typically feature higher interest rates than regular loans. In many cases, short-term loans are used to help a business build up inventory or raise capital when temporary deficiencies in funding occur. For example, if a business needs to meet expenses or payroll while waiting on clients to pay invoices, a short-term financing option may help the business acquire the capital needed to make expenses when it has the means or ability to repay the loan within a short period of time.
To acquire short-term financing, the business or individual provides a lender with documentation to show cash flow, income and revenue or assets that can be used as collateral for the loan. Some lenders provide unsecured or signature loans for borrowers with a steady payment history and higher credit rating. With unsecured and signature loans, it is not necessary to provide assets as collateral.
