FreightWaves Ratings cuts through the noise of freight technology product reviews to make you a smarter buyer

Is short term financing worth it?

As an owner-operator, a small business owner, or an owner of a larger corporation, there might come a time when you are in need of financing. It doesn’t necessarily matter what you need the financing for, as it can be used for many reasons. 

From getting a quick boost in cash to get your business off the ground to receiving financial assistance for repairs that your vehicles desperately need, short term financing might be the right solution for you. However, while short term loans offer many benefits, they come with a few disadvantages as well. 

This article will cover the pros and cons of short term financing. We hope this helps to guide you as you make your decision! 

What is short term financing?

The main short term financing definition is a type of loan or line of credit that a bank or lending institution provides. The payment terms are typically fewer than 24 months. 

These loans are often preferred by business owners when they need immediate cash flow, not when making major purchases like a new truck. In those instances, you’d want to find a longer-term financing option. 

What are the rates on short term financing?

There is no one-size-fits-all rate for short term financing. Many factors are included that help the lender guide the rate you’ll receive, including creditworthiness of the borrower. 

However, it’s important to note that the interest rates on these types of loans and lines of credit tend to be higher than a longer term loans. The good news is that because of the shorter repayment period, you might pay less interest over the course of the loan than you would with a longer-term option. 

What is the payment schedule?

The payment schedule of your loan is dependent upon the lender itself. These loans will be fixed rates because of the shortened lifespan of the loan, so your payment will remain consistent daily, weekly, bi-weekly, bi-monthly, or monthly, depending on which option your lender selects. 

Be sure to check the payment schedule to ensure you understand the payment. A $400 payment might not seem so bad, but if it’s a weekly payment instead of a monthly payment you might be in for a shock.  

What are the requirements for short term financing?

Overall, short term financing is easier to qualify for than longer-term loans. In fact, many will allow a credit score as low as 550 as well as and a shorter business history in order to be approved. However, these factors also come with higher interest rates.

If you have great credit and a lengthy business history, you too can enjoy the benefits of a short term loan but with the added perks of having a lower interest rate. 

Execution of Lending

The time it takes to execute your loan will vary from lender to lender. Some banks and lenders can take weeks to fund your loan, whereas others can take a few hours. If you’re in a pinch for cash fast, be sure to add this to your list of questions when you’re searching for a lender. 

Types of short term financing

Below you will find the different short term financing examples that your trucking business might find useful. Here are a few options that you should consider.

  • Term loans: The most widely used source of short term financing is term loans. Term loans are when you borrow a lump sum of money and work with the lender of a repayment schedule over an outlined period of time. 
  • Vendor credit:  Short-term financing with a vendor is another option. If you rely on vendors to provide repairs, equipment, or other services, you can use vendor credit, which is a type of short term financing. Each time you work with the vendor, they’ll invoice you for the goods or services with the promise of payment at a later date. This is typically anywhere from 30 to 90 days in length. While these loans generally don’t have interest rates like term loans do, if you fail to meet some of your payment obligations, you’ll experience credit-related ramifications as a result. That said, this is the least expensive form of short term financing.
  • Invoice factoring: After sending an invoice to your clients, it might take a little bit to receive payment. Instead of waiting, invoice factoring companies can give you immediate cash fast to pay for your employees, fuel, and other expenses without having to wait to collect payment. With this type of short term financing, you are agreeing that the factoring company will provide you with a portion of cash for your unpaid invoices of usually 75% or more, and when the customer pays, you’ll receive the remaining balance, minus fees and interest. 
  • Cash advance:  If you’re not eligible for other short term financing options but you still need cash fast, a cash advance might be the best option for you. This funding option utilizes your debit and credit card payments. The lender will then take a percentage of your daily transactions as a form of payment, and they are then automatically withdrawn from your account on a daily or weekly basis until your debt is paid in full. 

Benefits of short term financing

There are various reasons that you might need short term financing. The potential for these loans are great, and they come with the following benefits.

Instant cash flow

When you need immediate cash flow, a short term loan can typically be funded quickly. This can help pay for your bills, repairs, or other emergency expenses when you need it the most. 

Accessible for those with poor credit

Even if you don’t have the best of credit, there are short term financing options that can get you the cash you need when you need it. Borrowers will still face a higher interest rate, but the best news is that these loans can help boost your credit score when you make payments on time. It’s a win-win! 

Flexibility and less accrued interest

Short-term financing has a lot of flexibility when it comes to your options for financing. As we explored above, there are four different routes you can take. 

With varying repayment options to various rates, you’ll have a lot of flexibility to find an option that works for you. Plus, with a short term loan, you accrue less interest than a longer-term loan since the repayment period is shorter. 

Disadvantages of short term financing

While it might sound amazing to have the cash quickly to fund your needs, you should also consider the disadvantages of short term financing before agreeing to take out the loan or line of credit. 

High interest rates

Short-term loans generally come with higher interest rates, especially for those with less-than-ideal credit. On top of repaying your loan balance, you’ll be contractually obligated to pay back higher interest payments as well. 

Risky for those with poor repayment habits

While short term loans can help you improve your credit, they also have the ability to tank it as well. If you fail to repay your loan, your credit score will take a hit and make you less eligible for future loans in the event of an emergency. Make sure you take a good look at your ability to repay your debt before you agree to the loan in the first place. 

Tighter deadlines

Short-term loans come with varying deadlines, with some requiring as often as daily payments. It’s important to ensure that you understand the deadlines. You don’t want to take on payments that are more frequent than you’re able to repay on such tight deadlines. 

Comparison of long-term vs short term financing

The biggest difference between short term loans and long-term loans is the repayment period. Short-term loans tend to be paid back over 24 months or less. Long-term loans, on the other hand, are for extended periods of time, which can be upwards of decades. 

Here are a few other key differences:

  • Purposes: Short term loans tend to be used for cash flow, emergencies, repairs, and equipment upgrades. Long-term loans are often utilized when purchasing large pieces of equipment or other high-cost items. 
  • Interest rates: Short term loans tend to have higher interest rates than long-term loans. The latter of the two tend to have lower interest rates, though they come with longer repayment periods, which can result in more interest paid over the course of the long-term loan. 
  • Payment frequency: Payments towards short term loans can be as frequent as daily, weekly, bi-weekly, bi-monthly, or monthly. Long-term loans tend to be set to a monthly payment schedule.
  • Credit score eligibility: People and businesses with less-than-ideal credit history can qualify for short term loans. However, long-term loans have stricter eligibility requirements. 

Is short term financing right for you?

The decision to take out a short term loan is a personal one. You should evaluate the needs of your operations, how the money will be spent, and whether you can adhere to tight payment schedules. If it’s the best option for you, then you can start your search for the right lender today! 

Each lender offers loans with their own sets of pros and cons, from how quickly they’ll fund the loan to the interest rates attached to said loans. Make sure you do your research to find a short term loan that fits your unique needs. 


What are the disadvantages of a short term loan?

Disadvantages include higher interest rates compared to long-term loans, and the requirement for quick repayment can put pressure on cash flow, possibly creating a cycle of debt.

Is short term financing risky?

It can be, due to high interest rates, repayment terms, and potentially entering a cycle of debt if the borrower misses payments. Consider speaking with a financial advisor if you have questions or concerns before signing a short term financing agreement.

Do short term loans affect your credit score?

Yes, short-term loans can affect your credit score. If repaid on time, they can help improve it; however, late or missed payments can significantly damage your score.

Sign up for a FreightWaves e-newsletter to stay informed of all news and trends impacting supply chain careers and operations.

TAFS is More than Freight Factoring

As one of the industry leaders, TAFS helps companies increase cash flow with some of the lowest factoring rates in the industry and 1-Hour Advance option.