# Short-term business loans in Canada: how they work and when they fit

A lump sum repaid within months rather than years. How short-term business loans are priced and repaid, what they cost, and when a line of credit is the better answer.

Published: 2026-09-25 · Spark

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A short-term business loan is a lump sum repaid over months rather than years — usually somewhere between three and eighteen. It is the fastest-moving part of business lending in Canada, and one of the easiest to misprice.

## How they work

- You receive a fixed amount into your operating account.
- You repay it in equal payments — often **weekly**, sometimes daily or monthly — until it is paid.
- The cost is usually quoted as a **total you repay** or a **factor rate**, rather than an annual interest rate.
- It is usually **unsecured**: nothing specific is pledged, though a personal guarantee is common.
- It is sized from your **bank statements**: what lands in the account each month, and how steady it is.

## What they are good for

Short-term loans fit a spend that pays for itself quickly:

- Stock for a season you can already see coming
- A job or contract that needs money up front and pays out in weeks
- A repair or replacement that is stopping the business from earning
- Bridging a payment you know is coming — a receivable, a grant, a tax refund

The test is simple: will the thing the money buys bring it back before the loan is paid off? If yes, the short term works in your favour. If not, you will likely need another loan to pay this one.

## What they cost

Short-term loans cost more per year than long-term ones, for two reasons. The lender's money is at risk with less security and less history behind it, and a fixed cost repaid over a few months works out to a high annual rate even when the dollars are modest.

That is why the annual rate is often left off the quote. It is also why you should compare on the **total in dollars**:

- How much do I receive?
- How much do I repay in total?
- How much is each payment, and how often?
- How many payments?

Run those through the [business loan calculator](/business-loan-calculator) and you will see the annual rate as well. [What working capital costs](/guides/what-working-capital-costs) explains how to put two offers side by side.

## Weekly payments: plan for the bad week

A weekly payment comes out whether the week was good or not. Before you sign, check the payment against your slowest month's deposits, not your average. If it only clears in a good week, the loan is too big or the term is too short.

## Short-term loan or line of credit?

If the need comes back — a gap every month, a slow season every year — a [line of credit](/capital/line-of-credit) usually costs less, because you only pay for what you draw and it is there again next time. Taking a new short-term loan every few months to cover the same gap is expensive and it tends to escalate.

If the need is one specific thing with a price attached, a short-term loan is the more straightforward tool.

## Short-term or longer-term?

A longer [term loan](/capital/term-loans) has a smaller payment and a larger total cost. A shorter one has a larger payment and costs less in dollars. Neither is automatically better. Pick the shortest term whose payment your slowest month can carry comfortably.

## Watch for

- **Renewal offers** partway through. Paying off a loan with a bigger new one can mean paying the cost of the first one for money you mostly already had.
- **Stacking**: taking a second loan before the first is paid. The combined payments are where businesses get into trouble.
- **Fees outside the total**, and what a missed payment costs.

For the difference between a lump sum and a line in one page, see [an advance or a line of credit?](/blog/advance-or-line-of-credit)