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Compare short term business loans

Short term business loans can be essential to help get your company to the next level.

A short term business loan is one of the most common ways to finance the launch of a startup. They’re also used to help scale a successful business.

However, the difference between securing the best and worst terms on a short term loan could make a substantial difference to a business’s bottom line.

In this guide, you’ll learn whether a short term loan is right for your business, how to find the best deal and how the approval process typically works.

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Key details of short term business loans

Loans with a term less than 18 months or 2 years are considered short term and can even come with daily or weekly repayments instead of monthly repayments.

  • Who it’s for: Any business with a one-time expense
  • How much you can typically borrow: £1,000 to £500,000
  • How long you can typically borrow for: 1–24 months
  • Turnaround time: As fast as one day
  • Typical cost: 20–55% APR

In all cases, the lender will consider your business credit score, annual turnover and how long you’ve been in business during the approval process. In many cases, it will display minimum eligibility criteria for all three of these factors.

How can a short term loan benefit my business?

  • Covers gaps in cash flow. You need money to keep things running, but revenue has stopped coming in, for now. A short term business loan can help pick up the slack to maintain overhead costs while you wait for things to go back to normal.
  • Gets you cash fast. Many short term business loan providers can get you funds in as little as one business day after you submit your application.
  • Designed for emergencies. Your business’s van broke down days before a huge delivery or one of your restaurant’s ovens is on the fritz. A short term business loan can give you just enough to cover those immediate repair costs so your business doesn’t lose even more money.
  • Doesn’t require good credit. Short term lenders often accept applicants with average credit scores, meaning you don’t need to have a spotless personal financial past to qualify for this business loan.
  • Minimal paperwork. Not only is the turnaround time quick, the amount of time and effort needed for the application is generally less than your typical business loan, letting you get back to work quickly.

What to watch out for

  • Can be expensive. Short term loans come with higher interest rates and fees than other types of loans, especially if they come with lax credit requirements.
  • May have weekly or daily repayments. If your business is just starting out and doesn’t make money every day or relies on large lump-sum payments each month, you could have trouble paying back a short term business loan.
  • Can be a debt trap. With any short term loan, there’s a risk of borrowers taking out more short term loans to pay off the last loan. With high interest rates, you can spiral into a cycle of debt that could ruin your credit and put you out of business.
  • Not good for large expenses. The larger the loan, the higher your repayments will be and the more interest you’ll pay. With such frequent repayments, a large short term loan could be the recipe for default and a ruined business.

How to choose the best short term business loan

Once you’ve decided which type of short term business loan is best for your business, you should consider the following factors:

  • How much you want to borrow. Each lender will have a minimum and maximum lending amount. Ensure the amount you want to borrow falls within this range.
  • How long you want to borrow the money for. As a general rule, the longer you borrow the money for, the more you’ll pay in interest. Decide how quickly you’ll be able to pay back the loan and choose a lender that allows you to borrow over this time period.
  • The interest rates offered to you. Each lender will advertise a representative APR (annual percentage rate) although this rate only has to be offered to 51% of customers. The rate offered to you will depend on your credit score. Don’t forget to check whether the rate you’re offered is fixed for the duration of the loan or is variable.
  • Fees. While fees are less common these days in the world of personal loans, they’re far from rare when it comes to business loans.
  • The overall cost. If you only focus on one factor, it should probably be this one, as it takes into account both interest and fees.
  • Eligibility. Each lender will have its own minimum criteria, such as monthly turnover, company status or years trading, that your company will need to meet in order to be considered.
  • Early repayment. Will repaying some or all of your loan ahead of time save you money? How much could it save you? If you think there’s a strong possibility you could repay your loan early, favourable early repayment terms could be more of a benefit to you than a fractionally better interest rate.

How does it work?

In many cases, you can apply for a short term business loan very quickly using the lender’s website.

You’ll need to fill in a few essential personal details as well as the essential details to identify your business, such as your company type, business address and limited company number.

In most cases, you’ll also need to provide financial details and proof of income, such as VAT returns and bank statements. You may also need to explain why you’re applying for a loan.

Some lenders will make an instant decision on your application. Others take two to three business days. Once your loan has been approved, you can sometimes expect to be credited with your loan on the same business day.

Short term loans and business credit scores

Lenders use a business credit score to assess the creditworthiness of your business.

Credit reference agencies calculate your business credit score based on information in your business credit file. The factors they use to measure your score include borrowing history, previous credit applications, current debt, debt payment history and the number of years the company has been in business.

Different lenders will use different credit reference agencies to measure your business credit score. Your score will determine the terms of the loan offered to you, if you’re considered eligible at all.

To ensure your business maintains a healthy credit score, don’t open too many lines of credit or push your existing lines too close to their limit. This makes your business appear as a risky prospect. However, it’s generally worth opening some lines of credit and making timely repayments in order to build your company’s credit score.

Alternatives to short term business loans

Short term business loans are a handy option if you’re looking to borrow large sums of money with short notice, but they’re not always the best option.

A business credit card could prove more useful if you’re looking to cover immediate expenses. Although the maximum borrowing amount doesn’t tend to be as high, the application process typically isn’t as strict or as complicated as applying for a short term loan. It’s possible to attach multiple cards to the same account, which can prove to be a useful way to manage employee spending.

It may also be possible to add an overdraft onto your current business account, which will give you access to additional funds as and when you need them. Often, the lender will agree to leave an overdraft in place for a fixed amount of time before removing it.

If it’s unlikely your business will be able to repay the loan over two years or less, consider a medium or long term business loan instead. The repayments on these longer deals will be lower, although you’ll pay more interest in total.

There’s no one-size-fits-all business loan. The loan type that works best for you depends on your business’s immediate needs and how it operates. Have a lot of outstanding invoices? Invoice factoring might be what you’re looking for. Have an unpredictable and irregular cash flow? Consider a line of credit. Here are some of your options:

Medium or long term business loan

These business loans come in one lump sum that you pay back over a set period of time with interest (usually fixed) and fees.

  • Who it’s for: Any business with a one-time expense
  • How much you can typically borrow: £5,000 to £1 million
  • How long you can typically borrow for: 1–7 years
  • Turnaround time: As fast as a couple of working days
  • Typical cost: 10–40% APR

Invoice factoring

Invoice factoring involves selling your business’s unpaid invoices to a third party for a percentage of their value. Your lender gives your business a smaller percentage of the invoices upfront after deducting a fee. Once your customers pay off the invoices, the lender gives your business the remaining amount.

You can either sign up for monthly invoice factoring to make sure all of your business expenses are covered or use invoice factoring to cover a one-time payment. You can also either factor all of your business’s invoices or select which invoices to factor.

  • Who it’s for: Businesses that rely on accounts receivable
  • How much you can typically borrow: Depends on the value of your invoices
  • Turnaround time: As fast as one day

Invoice financing

Similar to invoice factoring, invoice financing gives you an advance on your invoices. It’s essentially a loan backed by your company’s invoices. You’ll get a percentage of your invoice’s value upfront, which you pay back with interest and fees. Once the client pays you, you repay your lender.

  • Who it’s for: Businesses that rely on accounts receivable
  • How much you can typically borrow: Depends on the value of your invoices
  • Turnaround time: As fast as one day

Line of credit

Lines of credit give your business access to a certain amount of funds at the last minute, similar to a credit card. You only have to repay what you borrow and your loan term typically starts when you make your first withdrawal. Short term lines of credit typically come with terms that range from 6 to 12 months with weekly or even monthly repayments.

  • Who it’s for: Seasonal businesses
  • How much you can typically borrow: £1,000 to £10 million
  • Turnaround time: As fast as one day

Merchant cash advance

Merchant cash advances are quick lump-sum advances on your business’s future sales. Your business can typically qualify for a certain percentage of its annual sales and pay it back with a percentage of your business’s daily sales or with fixed daily withdrawals from your business’s bank account.

Instead of getting an interest rate, you’ll get a factor rate, which determines how much you’re on the hook to pay back upfront. Multiply your merchant cash advance by the factor rate and that’s how much you’ll pay.

  • Who it’s for: Businesses that rely on credit or debit card sales
  • How much you can typically borrow: Depends on your annual sales
  • Turnaround time: As fast as one week

Bottom line

Short term business loans could help your business in a pinch. Their fast turnaround time and relatively effortless applications mean you can get a small amount of funds fast when you need it. Your business will pay for that quick and easy application because they cost more than your typical business loan, so you might want to treat them as a last resort.

Curious about how other types of business financing work? Check out our business loans guide, where we break things down and compare lenders.

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2 Responses

  1. Default Gravatar
    PeterApril 18, 2019

    We are a start-up company and require a short term loan of £25,000 for three months (or say six months to allow for contingencies). We have three sources of funding coming in to repay this facility, each of which will provide more than twice the amount we wish to borrow.
    Today we are opening a business account with Barclays.
    The purpose of the loan is to finalize our business plan, after which we have access to long term investment.
    Can you suggest a possible loan facility?

    • Avatarfinder Customer Care
      JoshuaApril 21, 2019Staff

      Hi Peter,

      Thanks for getting in touch with Finder. I hope all is well with you. 😃

      On this page, you will see one of your options, iwoca. However, if you want to explore more options, please click on the “Get quick quotes” green button found above this page.

      Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua