Short term business loans

Short term business loans are used to help business owners manage dips in cash flow, navigate seasonal variations and fund company development and growth. With the sector growing year on year from 2015 to 2022, short term business loans are flourishing into an essential tool for companies looking for fast access to funds.

What is a short term business loan?

Short term business loans enable business owners to borrow and repay essential finance within a period of months. Generally designed to provide faster access to cash than their longer term counterparts, short term loans typically have shorter application processes and can sometimes come with faster approval periods. Their short term nature generally means they come with higher interest rates.

What can I use a short term business loan for?

• Navigate seasonal variations (eg for seasonal businesses, revenue can go up in Christmas but fall in February) 

• Manage cash flow

• Smooth out financial emergencies 

• Pay for broken equipment

• Capitalise on a time-sensitive offer extended by a supplier

• Purchase an essential tool

• Buy stock or inventory

• Acquire a property (yes, really! More on this later)

Key features of short term business loans

Short term business loans generally come with shorter repayment periods, higher interest rates, a faster approval process and smaller loan amounts. They can be both unsecured business loans and secured business loans and business owners are often asked to provide a personal guarantee. Some of these loans are extended without a specific purpose specified, while others are extended specifically to purchase inventory, another company, or property.

Types of short term business loans

• Term loans: Term loans are probably what you think of when you think of a business loan. They’re when the lender extends a sum of money to the borrower and the borrower repays the loan with regular payments over a fixed period.

• Lines of credit: Lines of credit are a catch-all term that includes business credit cards. It’s when a lender extends a preapproved sum that the borrower can draw from and replace (usually within a period not surpassing one month), then rinse and repeat. These can also be referred to as revolving credit facilities.  

• Merchant cash advance: A merchant cash advance is an advance on future card sales. You receive a lump sum in exchange for a percentage of future earnings and you pay the sum back via a percentage of your weekly or monthly card sales until the full advance is repaid plus any interest or fees.

• Invoice finance: Invoice finance involves releasing cash tied up in unpaid invoices. Let’s say you’re owed payment on three invoices, you could choose to get a loan for around 90% of the value of those invoices which you would then repay once the invoices are paid.

• Equipment financing: This can involve leasing or buying a piece of equipment. Equipment finance can come in many forms, including monthly repayments, taking on full ownership of the equipment at the end, and even trading up at the end of the term.

• Bridging loans: Bridging loans are designed to bridge the gap between funding. They are often used to acquire property while awaiting additional funding, for instance, in the form of a commercial mortgage or the sale of a different property. Interest is usually spread over a series of monthly payments, up to around 12 monthly payments, with the full amount repaid at the end of the term. 

The pros of short term business loans

• Fast access: Short term loans are designed to help in emergency circumstances and as such can be faster to facilitate.

• Flexibility: There are a wide range of short term business loan types which encompass a range of uses, including property purchase and stock acquisition.

• Accessibility: Many lenders and lender types (business banks, online lenders, credit card companies) offer short term loans, so you may find short term loans to be an accessible form of funding.

• Shorter payment terms: Sometimes, you just need a bit of cash to cover a specific period and then you want to close off the agreement. Long term loans can make this difficult, as many charge early repayment fees.

Potential risks of short term business loans

• High interest rates: Their short term nature makes them riskier for lenders as the borrower has less time to meet the repayment terms, this means short term financing often comes with higher interest rates.

• Smaller loan amounts: Since there is less time to repay the loan, lenders may be less inclined to offer large loan amounts.

• Credit score: Missed repayments and defaults result in dropped personal and business credit scores which can impact your ability to borrow in the future.

• Debt trap: Short term loans can create a cycle of debt, in which borrowers consistently take out funds beyond their means to repay and then rely on new debt to repay the historic debt.

Qualification criteria for short term business loans

To use our service, you’ll need to be over 18, your business should be based in or operate within the UK, and you should have a trading history spanning at least 6 months. We do work with businesses looking for bad credit business loans and we also help finance start up companies.

Many lenders don’t work with gambling companies, weapons and chemicals manufacturers, banks, and businesses engaged in illegal activities. If you’re unsure whether or not you fit into any of these categories, feel free to get in touch with us directly and we’ll assess whether or not we can assist you in finding a suitable lender.

How to choose the right lender

Finding ‘the right’ lender is a case of personal preference, availability, and circumstances, but some good things to keep an eye out for include:

• Fair interest rates: Consider whether or not the offered interest rates align with your goals. Assess not only how much you’ll be charged, but how much you could be charged if something were to go wrong, if you were unable to repay on a given day, or if you wanted to repay early.

• Transparency: Search for a lender who is transparent in their dealings with you. They should share the cons as well as the pros and ensure you are fully aware of and prepared for the agreement you are entering into.

• Reviews: If you can, see if you can find any reviews, whether online or in person, from historic customers. This can help you get a better grasp on how your chosen lender treats their customers and if that aligns with your expectations.

What does a short term business loan cost? 

You will likely be charged a mixture of interest rates and fees. Interest rates vary greatly depending on your creditworthiness (a measurement of how likely you are to repay the loan based on your financial history and current circumstances), the lender, the loan type, whether you are planning to put up a personal guarantee or not and whether or not you intend to put up any assets as collateral.

You may be required to pay admin fees, broker fees, and exit fees and the interest rates may be variable (meaning the change based on the current climate) or they could be fixed (meaning they’re pre-agreed in advance).

In the UK, start up loans backed by the government come with a fixed interest rate of 6%. Some revolving credit facilities come interest-free if repayments are made within the month. Unsecured loans had an average interest rate between 7% and 20% whereas secured loans ranged from 4% and 20%. A Growth Guarantee Scheme is being offered by the government which could potentially bring down interest rates for some loan types. Reach out to our team to find out more about getting on this scheme.

How to apply for a short term business loan 

• Find a lender: You can do this by using a broker, like Funding Options by Tide. We help match eligible borrowers to suitable lenders and provide the expert support you may need to find the most suitable lender for you.

• Gather your documents: Put together some cash flow projections and other relevant documents and make sure you have all information to hand, for example, your company address and other details.

• Submit an application: Narrow down your choice to one suitable lender and one short term business loan type and then hit apply. If you need support with your application, feel free to reach out to our team of experts.

• Wait for a decision: Short term loans often come with shorter waiting times, given their more urgent nature, however, you will likely still need to wait for a decision. This waiting time could take anywhere from a few minutes to 24 hours or a few months, and the lender will likely run a credit check on you or your business, possibly both.

• Withdraw the funds: If you’re approved, the funds will be released and it’s time to use them for their approved purpose.

How much could I borrow?

That will depend on your loan type, personal circumstances, and the lender. For example, if you’re seeking a bridging loan for property development and using the property as collateral, you will likely gain access to more funds than if you’re seeking an unsecured start up loan. At Funding Options by Tide, we help borrowers apply for funding between £1,000 and £20M.

Do I need to make a personal guarantee?

Possibly. Whether or not you’ll need to put up a personal guarantee will depend a lot on the lender, however, given the riskier nature of shorter term loans, it’s likely you’ll be asked for one. If you would prefer not to put up a guarantee, let our team know and we’ll see if we can help match you to a lender offering an alternative solution.

Find a short term business loan with Funding Options by Tide

We help match eligible borrowers to our network of over 120 lenders offering between £1,000 and £20M. Just click the link below and submit your information to find out if you’re eligible to for our lender matching service.

Find a short term business loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

Short-term lending can lead to financial difficulty and is not suitable for everyone. Contact us for support if you ever face difficulties making your repayments. Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.