Applying for a Short Term Business Loan Online? These 4 Steps Can Protect Your Startup. Be informed and know for sure if signing with an unregulated lender is the right option for you.

By Ami Kassar Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

I recently met an entrepreneur who started a franchise in his mid-50s with funds from his 401k but was now in a tough spot. His first payroll check had just bounced and he was shaken up about it, as his franchise employed 30 people and he dreaded the thought of having to shutdown.

Like many others, this entrepreneur experienced sporadic cash-flow droughts in his first years of business. To rebound quickly, he took out cash advances that quickly led him into a cycle of renewals. Now, cash advance merchants claimed 30 percent of his monthly revenue.

Visit: Entrepreneur Bank Search -- A search tool to help you discover local banks.

As the founder of a small-business loan advisory, my firm often receives calls from entrepreneurs who are stuck in a debt cycle. I see many cases where the entrepreneur realizes the risks of cash advances or short term business loans too late and they're left repaying with huge percentages of their revenue, plus the expensive fees and interest rates.

Better standards for this self-regulated industry would help, but until those standards are in place, entrepreneurs need to educate themselves about this industry and the impact merchant cash advances might have on their business. Here are steps entrepreneurs should consider taking before signing the dotted line.

Related: How to Cure Entrepreneurial Brain Freeze

  1. Applying for a short term loan online or cash advance should always be your last resort because these forms of capital are often the priciest option. If you're considering one of these loans take a step back and look at investment lenders or SBA lenders who will offer you much longer amortizations and reasonable interest rates.
  2. Before you take on one of these loans or advances, ask your vendors if they can be flexible with your payments. Even if the vendor charges you a fee, it will likely be cheaper than the short term online lender.
  3. If you do choose to pursue one of these loans or advances, the most important step is to calculate your daily payment to the lender. These payments will come out of your checking account daily for the life of the loan. Think long and hard if you will be able to handle these cash withdrawals.
  4. Also, the lenders or advance companies will often encourage you to take the shortest possible loan. In the cases where these loans are the only choice for your business, I encourage a borrower to take the longest possible loan, and get the smallest possible daily payment. While the longer loan will cost the borrower more dollars in the long run, you have to think about your cash flow. If you take the shorter term, you might be forced into a renewal half way through your loan or advance in order to keep up with the cash flow.

With the right education, entrepreneurs can keep running their businesses instead of getting trapped in a debt cycle until better standards for unregulated lenders are in place.

Visit: Entrepreneur Bank Search

Ami Kassar

CEO and Founder of MultiFunding.com

Ami Kassar, CEO and founder of MultiFunding, is a nationally renowned small-business advocate and leader. Prior to founding MultiFunding, Kassar spent a decade in various senior roles at Advanta Corporation, one of the nation’s largest issuers of credit cards to small-business owners. Kassar served as the company’s chief innovation officer, and was charged with developing innovative approaches for the small-business market. He is the 2013 recipient of the Small Business Influencer Award as well as the 2012 Small Business Advocate Award.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Celebrity Entrepreneurs

From Hollywood to Harvest — How Zooey Deschanel is on a Mission to Make Fresh Produce More Accessible

Along with her business partner and ex-husband, serial entrepreneur Jacob Pechenik, Deschanel founded Lettuce Grow. This hydroponic vertical garden system allows you to grow fruits, vegetables, herbs and edible flowers at home.

Business News

Elon Musk's xAI Claims Its New Grok 3 AI Is Better Than ChatGPT and DeepSeek: 'Seeing the Beginnings of Creativity'

xAI debuted the new AI on Monday, claiming it has 10 times the computational power of Grok 2.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Side Hustle

This 30-Year-Old's $6,000-a-Month Side Hustle Started Making Money 'Immediately' — But He's Not Quitting His Day Job

Derrick Mathy works in orthopedic surgical device sales and is on a mission to bring people together in real life.

Business News

'Unprecedented in Our 53-Year History': Southwest Airlines Announces Its First Mass Layoffs Ever

The airline is eliminating 15% of its corporate workforce, including many in senior leadership positions.

Business Models

How This Luxury Retail Store Builds 100-Year-Relationships with Its Customers

Brent Polacheck, owner of Polacheck's Jewelers, is proving that in an era of instant gratification, the art of generational relationship-building still drives retail success.