Short Term Business Loans

What is a short-term business loan?

A short-term business loan is a way to help pay for things your business needs over a short period, typically 12 months, but there are loans available that are repayable over even shorter terms, such as three months.

How do short term business loans work?

A short-term commercial loan works the same way as a standard business loan but is typically used to help business owners access cash for emergencies, unexpected costs, or take advantage of business opportunities.

Once approved, you can typically access the cash within 24 hours up to three working days, and you’ll pay interest on the loan. A short-term business loan's annual percentage rates (APRs) can be as low as 5% and up to 50% or higher. This will vary depending on the borrower’s creditworthiness.

Interest will start to accrue from the moment you’ve received the cash, and you’ll need to repay the loan in monthly instalments.

What can I use short term business finance for?

You can use a short-term business loan for anything you believe is helpful or necessary for your business. Examples of typical usage for short-term business loans include:

• Emergencies. A short-term loan can be helpful if your business is facing an expense for something you don’t have the cash for upfront. You might face repairs to vehicles, an office or machinery that your business needs to continue trading.
• Cash flow. If your business is seasonal or you experience a slow down in trade due to circumstances beyond your control - for example, adverse weather conditions, then a short-term loan can bring relief to make payroll.
• Opportunities. If your business has an opportunity to increase its revenue but you need quick funding, a short-term business loan could mean you have the money in your account within 24 hours.
• Moving premises. You may decide to move your office and need additional funds to help with moving expenses. A short-term loan can help with one-off, unprecedented events, providing you plan for them.

How much can I borrow with a short term business loan?

You can usually get a short-term commercial loan of between £1,000 right up to £1 million, but the actual amount your business will be able to borrow will depend on your business’s credit history, financial circumstances and the reason you need the loan and what you’ll spend it on.

How do I get a short term business loan?

Before applying for a loan, you should research and compare your options. There may be alternatives to a short-term business loan that might suit your business better.

Once you’ve decided on the type of short-term financing you’d like to apply for, check your credit score. Most business loans are personally guaranteed by the person who applies for it, so lenders will look at your own personal credit score too.

Once you’ve worked out how much you need to borrow, it’s important you compare lenders on a comparison site like ours. You should compare APRs, interest rates and any fees.

Once you’re ready to apply, you can do so online by filling out an application form.

Can I get a short-term loan for a small business?

Yes, it’s possible to get short-term small business loans. It’s not the size of your business that lenders will be concerned with. Lenders will want to know about your company's financial health, credit history and what you need the loan for before making a decision.

What are the alternatives of short term business loans?

There are several short-term business funding options. These include;

Company credit cards

Some businesses use credit cards interest-free for up to 56 days. After that time, you’d usually need to start paying interest on any balance, but if you only need to borrow for a short period of time, they can be a helpful way to access funds.

Invoice factoring

This method enables your business to sell your unpaid invoices to a third-party company that buys the invoices for a percentage of their value. They are then responsible for chasing payment, but you must sacrifice a portion of what you’re owed using this method.

Business overdraft

An overdraft can provide your business with additional funding to deal with seasonal trends and short-term cash flow.

Lines of credit

This allows you to borrow money up to an agreed credit limit. Interest is only paid on the balance owed, so it can help solve cashflow challenges, although it’s worth noting that interest rates can be high.

Asset financing

Business asset financing allows you to release cash from your business assets such as property or machinery which can be used as security to finance goods to generate further income or grow your business.

Merchant cash advance

This form of cash advance is repaid automatically when you take a card payment from a customer. This method tends to be a last resort for businesses with bad credit because interest rates can be high, and repayment is dependent on trade.

Government Start Up loans

These loans are designed for new businesses that may struggle to be approved for a traditional business loan. Government Start Up loans allow you to borrow between £500 and £25,000 to start or grow a business. There are strict eligibility criteria; however, interest rates are low, and free business mentoring is included.

Is a short term business loan a good idea?

It’s important to weigh all the different financing options for your business before you apply for a short-term business loan. Short term loans typically charge high-interest rates, so they might not be the best option for your business.

If you’re looking for a quick solution and know your business won’t need to keep repeatedly applying for short-term loans, then a short-term loan could be helpful in one-off circumstances or emergencies.

What are the pros and cons of short term business loans?

Pros

• Access to funding quicklyShort-term business funding can provide you with money for your business relatively quickly - sometimes within 24 hours, but typically within a few working days.
• Help with cash flow challengesIf your business can’t make payroll, a short-term business loan can help bridge the cash flow gap in emergencies.
• Relaxed eligibilityShort-term lenders are typically less strict about who they lend to, allowing businesses or business owners with poor credit access to much-needed funds.

Cons

• High-interest ratesSome short term loans will have higher interest rates than standard loans.
• It could be habit formingThe convenience of borrowing for short periods could make it tempting to get another loan every time your business struggles. However, if you borrow like this regularly, you’ll likely pay lots of interest, which won’t be cost effective.
• Fees for early repaymentSome lenders will charge you an early exit fee if you choose to pay off the loan before the terms you agreed to.