Short-term business funding covers a cost that pays back within months, not years. For an Ashland, OH store with a supplier statement due, the choices on this site are a short term loan, a draw on a credit line or a merchant cash advance. An invented auto parts store prices the same bill all three ways.
Short-term funding is for costs that pay back within months. A short loan has fixed installments, a line draw charges interest only for the days used, and an advance takes a share of card sales until a fixed sum is remitted.
What a short-term business loan is, for an Ashland, OH auto parts store
In this article, short-term means paid back within about 18 months. That covers three different tools: a short loan with fixed installments, a draw on a line of credit, and a merchant cash advance, which buys a share of future card sales rather than lending money.
A parts counter run by a handful of people can see one distributor statement swallow much of a month's cash. County Business Patterns for 2023 puts 8 of the county's 14 stores in NAICS 4413 under five employees, so a counter that small is no rarity in Ashland County, OH.
How a short-term loan works on the store's supplier statement
In this invented example, the store owes its distributor $15,800 for a large stock order of batteries, wiper blades and filters, and wants to spread it out. A six-month loan at an invented 15.9% carries six installments of $2,756.79.
Those invented payments come to $16,540.74, so the interest on the statement is $740.74. The installments are fixed, which makes them simple to plan around, but they are due whether the stock sells in weeks or in months. Working capital funding works on the same pattern.
The same statement on a line of credit draw
Now the store draws $15,800 from a line of credit at an invented 13.9% a year and pays it back in full after 60 days, once the stock has sold through. Interest runs only on the drawn sum for those days: $361.02 in this invented case.
The line is cheaper here because the money is out for two months, not six. The catch is discipline: if the draw sits unpaid, interest keeps running, and some lines carry a yearly fee whether or not the store draws.
A cash advance against card sales: factor and holdback in dollars
A merchant cash advance works differently. In this invented example a provider buys $19,276.00 of the store's future card sales for $15,800, a 1.22 factor. It takes 10% of each day's card sales; at $1,640 a day in card sales, that is $164.00 a day.
At that pace the provider collects all of the invented $19,276.00 in 118 card-sales days, rounded up to whole days. The cost is $3,476.00 however long it takes, so weaker card sales spread the same cost over more days rather than lowering it. What the store signs is a sale of future card receipts, so no interest rate applies.
Dollars and days for each short option, side by side
| Option | How it is paid | Cost in dollars | Time to clear |
|---|---|---|---|
| Six-month loan at 15.9% | Six installments of $2,756.79 | $740.74 | Six months |
| Line draw at 13.9% | Paid in full on day 60 | $361.02 | 60 days |
| Cash advance, 1.22 factor | 10% of card sales, about $164.00 a day | $3,476.00 | 118 card-sales days |
In these invented figures the line draw costs least, the advance most. Real offers differ, and a funding partner sets the amount, price and term on each. The business loans overview lists every funding type on this site.
By Oceanreach Capital Group · Updated
