You can manage your cookie preferences in the sections below. If you would like to know more, please view our cookie policy.
A guide to helping you understand and compare short-term business loans
A guide to securing a competitive short term business loans
The most common forms of finance for businesses are short-term loans. Their availability and flexibility can make it quick and easy to obtain short-term business loans, which is why they are so popular. To help you find the ideal short-term business finance, we have compiled this comprehensive guide which will take you through the various steps involved in securing a competitive short-term business loan.
What are short-term business loans
Short-term small business loans are defined by their repayment period, which is usually set to less than a year. Although, the variety of loan types available often mean the debt is repaid in as little as a few weeks or months. This fast repayment period is ideal for businesses which do not need to borrow a large amount, as there is no long-term commitment and funds can often be released in less than 24 hours.
Short-term business loans can be used to fund anything from purchasing stock, to improving cash flow during quiet seasonal periods. The additional funds will increase the available working capital, which can then be used to cover a variety of expenses such as payroll, supplier bills and marketing campaigns.
Who is eligible for short-term business loans?
We specialise in providing businesses with competitive and flexible loans short-term commercial loans, so we partner with a panel of lenders who can meet the needs of almost every business. Our lenders include traditional high-street banks and also alternative finance providers, such as peer-to-peer lenders.
The quickest way to find out if you are eligible for short-term business funding is to complete the questions within our finance finder. The comparison tool is designed to assess your financial situation and loan requirements, to then provide you with a list of lenders who can provide the loan you need at the best short-term business loan rates.
The tool will act as a prequalification stage, so finalising the application is very quick and easy. Simply select which loan is the best match for your specific requirements and follow the short application process. The lender will assess your application by reviewing key financial documents such as your bank statements, income statements and even your business plan.
While processing your loan the lender will be assessing the level of risk associated with lending to you. If your business is struggling financially or has a poor credit rating, you are likely to be offered a higher interest rate than businesses which can display an excellent financial position. In addition, a high-risk loan may involve the lender offering you a secured short-term business loan. This will involve your business providing collateral which the lender may sell if the loan repayments are missed.
In most situations a short-term business loan will generally have a higher interest rate than a long-term loan, however this will depend on the lender and type of loan.
What types of short-term business loans are available?
The most traditional source of finance is a short-term bank loan, however today there are a variety of short-term business loans available including overdrafts, credit cards, merchant cash advances, lines of credit and invoice discounting. The main thing which they all have in common is that their aim is to increase the working capital of your business for the short term.
A traditional term loan will require the borrowed amount to be repaid in regular instalments, which normally means they are chosen for long-term loans. However, by fixing the repayments it can help businesses to plan their payments over the loan period and could improve cash flow.
Lines of credit, overdrafts and credit cards are forms of credit which are provided with a maximum limit. The main advantages of this type of borrowing is that they are easy to arrange and there is no fixed repayment schedule. Instead, you will only pay interest on the amount of credit which your business uses.
A merchant cash advance will involve your business being paid a set amount, although there is no fixed repayment schedule. Instead, the lender will recoup their loan by automatically taking their repayments from the income you receive through your PDQ machine. This can be an ideal short-term business loan for many businesses as the repayments are based on your actual income, resulting in a very flexible loan term.
Invoice financing is a type of short-term loan which unlocks the funds you have tied up in business invoices, rather than depending on your future income. The lender essentially buys the invoice and will provide a short-term business loan to the value of 85% of the invoice amount, with the remainder kept as a fee. There are different forms of invoice financing available, although the most popular is invoice discounting, as the business is still responsible for obtaining the funds for the invoice. Alternatively, in some situations invoice factoring is chosen, which involves the lender contacting the borrower’s customers to collect the payment.
How to compare and apply for short-term business loans
Through our lenders you could borrow anything from £1,000 to £20,000,000, although the larger amounts will usually be offered for long-term loans. With so many potential options it may seem difficult to find the ideal short-term business loan.
We understand how important it is for businesses to be able to access loans quickly, at the most competitive rates available, so we have developed our useful finance finder tool. The tool will ask you a variety of key questions such as, how much you need to borrow, how long for and what the funds will be used for.
We will then search a panel of flexible lenders to find a list of short-term business loan options, which will be ranked in order of how well they match your requirements. Once you have compared the list of available loans you will be guided to the lender’s quick application process.
The lender will examine the finances of your business, to see if you can demonstrate capacity to repay the loan. They are likely to ask for documents such as bank statements, cash flow forecasts and your annual turnover, as this will give a detailed insight into your historic and current levels of trade. To gain a picture of your businesses potential trade the lender will require a business plan. This should provide the lender with as much reassurance that the loan will be repaid as possible.
The exact interest rate and type of loan will depend on the calculated level of risk, with high risk short-term business loans subject to higher rates of interest and stricter terms. Depending on the amount you are looking to borrow and the risk of lending to your business, you may be expected to provide security. The value will need to match the amount which you are looking to borrow, with popular forms of collateral including property, vehicles, machinery and stock.
If your business does not have the assets available to provide security for the loan, you may be asked to provide a personal guarantee based on your own personal assets and finances.
To find out more about the variety of short-term business loans available and how they could benefit your business, please contact our team.
If you need some free advice our business experts would be happy to help
Monday to Friday
9 am to 5:30 pm
9 am to 5:30 pm