Quick overview

Short-term business loan options are designed to deliver cash fast for needs that don’t require long-term borrowing. They typically carry shorter repayment horizons (weeks to 12 months, sometimes up to 24 months) and come in different structures: bridge loans, short-term term loans, and merchant cash advances (MCAs). Each has tradeoffs in cost, flexibility, and underwriting — so matching the loan to the use case keeps you from paying for convenience you don’t need.

(Author note: I’ve advised more than 500 small-business owners on short-term financing and use real-world examples below to show how these options play out in practice.)

Sources: Federal Reserve Small Business Credit Survey (2022); Consumer Financial Protection Bureau (CFPB) guidance on short-term and high-cost financing; U.S. Small Business Administration (SBA) resources.

How the three main short-term options differ

  • Bridge loans: Short-duration loans that “bridge” a timing gap. Common when you expect another capital event (sale, long-term loan approval, invoice payment). Often secured or collateralized, they can be arranged through banks or specialty lenders. See our detailed guide to bridge loans for business uses for timing and exit strategies.

  • Short-term term loans: Lump-sum loans repaid over a defined period (e.g., 6–24 months) with fixed or variable interest. Terms and pricing are often friendlier than MCAs for businesses with decent credit and steady revenue. For comparisons with other products, see how business lines differ from term loans.

  • Merchant cash advances (MCAs): Advance based on future card sales or receivables. Repayment is a fixed percentage of daily credit/debit card receipts (or a daily ACH if you don’t process cards). MCAs are fast and flexible when sales fluctuate, but their effective cost can be much higher than standard term loans.

Internal resources: bridge loans (Bridge Loans for Businesses: Short-Term Financing Explained), term loan comparison (How Business Lines of Credit Differ from Term Loans), merchant deep dive (Merchant Cash Advances Explained: Costs, Uses, and Risks).

Who should consider each option

  • Bridge loan: Companies with a clear, near-term exit event — e.g., pending long-term loan approval, expected equity injection, real estate sale, or accounts-receivable payoff.
  • Short-term term loan: Businesses with predictable cash flow that can support scheduled payments and want lower overall borrowing costs than revenue-based financing.
  • Merchant cash advance: Retailers or restaurants with strong daily card volume that need money immediately and accept variable repayments tied to sales.

Eligibility signals

  • Lenders usually evaluate revenue history (3–12 months), cash flow, time in business, and owner credit.
  • Banks and credit unions may require more documentation and stronger credit than online specialty lenders.

Costs and pricing: what to watch for

Short-term options have different pricing methods and fee structures.

  • Term loans: Quoted by APR or interest rate. Also watch origination fees, prepayment penalties, and late fees. A healthy small-business borrower in 2025 may see single-digit to low-double-digit APRs from banks; alternative lenders charge more depending on risk.

  • MCAs: Typically priced using a factor rate (e.g., 1.10–1.50). A factor rate multiplies the funded amount to give the total payback (not an APR). Because repayment periods are short and payments are daily, the effective APR can be very high — commonly 40% to 200%+ depending on holdback percentage and repayment speed. CFPB and independent analyses warn that MCAs often carry the highest effective cost among short-term options.

  • Bridge loans: Pricing depends on collateral, term length, and lender type. Bridge loans arranged through banks can be competitive if collateral is strong; specialty bridge lenders charge higher rates and fees for speed.

Important cost traps

  1. Factor rates vs APR: Don’t compare a factor rate directly to an APR without converting — a 1.2 factor on a 3‑month MCA is vastly more expensive than a 20% APR on a 12‑month loan.
  2. Holdbacks and split-payments: MCAs can reduce daily cash flow when the holdback percentage is high.
  3. Rollovers and renewals: Reborrowing or extending short-term loans multiplies fees over time (see our piece on the long-term costs of rolling over short-term loans).

Practical examples (simplified)

1) Term loan example

  • Loan: $50,000
  • Term: 12 months
  • Interest: 12% APR (fixed)
    Monthly payment ≈ $4,424. Over 12 months you pay ≈ $4,424 x 12 = $53,088 (principal + interest), so interest ≈ $3,088.

2) Merchant cash advance example

  • Advance: $50,000
  • Factor rate: 1.25 (total payback $62,500)
  • If repaid over ~6 months via card receipts, effective APR can exceed 80% once daily reductions in sales and short repayment period are accounted for. The borrower repays more quickly but at a much higher cost compared with a term loan.

3) Bridge loan example

  • Loan: $100,000 to close a time-sensitive inventory purchase while awaiting a longer-term loan
  • Term: 3–6 months
  • Rates/fees: may include higher interest, origination fee, plus a clear exit plan required (sale, refinance, or new capital).

Tip: Run a side-by-side net-cash-flow comparison (monthly payment or average daily withholding) to see how each product will affect operating liquidity.

When to choose each option — decision framework

  1. Do you have a predictable repayment source in 3–12 months? If yes, consider a bridge loan (if you need speed and are awaiting a specific event) or a short-term term loan (if you want predictable payments at lower cost).
  2. Is your revenue seasonal and tied to card sales? If your daily card volume is strong and you accept variable repayments, an MCA might make sense — but only if you can tolerate the higher cost.
  3. Can you wait for slower underwriting to get a lower rate? If you can, bank or SBA products often provide cheaper capital.
  4. Will you need to roll or extend the loan? If rolling is likely, avoid high-fee short-term products because costs compound quickly.

Practical guidance I give clients: prioritize the cheapest product that still meets timing needs; only choose MCAs for short, unavoidable cash gaps where a higher cost is acceptable for immediate funding.

How to prepare and apply

Documentation lenders commonly request

  • 6–24 months of bank statements
  • Recent tax returns (business and/or owner)
  • Profit & loss statements
  • Credit report and history of owner(s)
  • Processing statements (for MCAs)

Application tips

  1. Reconcile bank statements and correct bookkeeping issues before applying.
  2. Get rate quotes from multiple lender types — community bank, online term lender, MCA provider, and your card processor if it offers advances.
  3. Ask for a full cost disclosure: APR (if available), factor rate, origination fees, prepayment penalties, and any daily/weekly collections.

Risks and common mistakes

  • Underestimating repayment impact: MCAs pull revenue daily; a sudden dip in sales can squeeze operations.
  • Choosing speed over cost repeatedly: repeatedly renewing short-term loans creates a debt trap.
  • Ignoring covenants: some bridge or institutional loans have covenants that can trigger default if not adhered to.
  • Not reading the fine print: look for automatic renewals, arbitration clauses, and personal guarantee requirements.

See our guides on managing multiple short-term loans and on how lenders price short-term loans for deeper details.

Alternatives and complementary solutions

  • Business line of credit: Better for unpredictable, intermittent needs because you only pay for what you draw. (Compare lines vs term loans in our guide.)
  • Invoice factoring or financing: If customer invoices are strong, these can be cheaper than MCAs and preserve daily cash flow.
  • SBA microloans or community programs: Often lower cost but slower to close.

Final checklist before you sign

  • Confirm the total payback amount and calculate effective APR or equivalent cost over the expected repayment period.
  • Verify whether the loan requires a personal guarantee or lien on business assets.
  • Confirm whether the lender will collect automatically and how collections affect daily operations.
  • Plan an exit strategy: how exactly will you repay the loan — sale, incoming financing, or operating cash?

Professional disclaimer

This article is educational and not individualized financial advice. Lending terms and rates change over time; consult a certified financial advisor or lending professional to evaluate options for your specific business. Sources referenced include the Federal Reserve Small Business Credit Survey (2022), Consumer Financial Protection Bureau materials on short-term financing, and SBA guidance on small-business lending.

Further reading on FinHelp

  • Bridge loans for businesses: Bridge Loans for Businesses: Short-Term Financing Explained
  • Merchant cash advance costs and risks: Merchant Cash Advances Explained: Costs, Uses, and Risks
  • Term loan comparisons and product selection: How Business Lines of Credit Differ from Term Loans