12 Month Business Loans

What is a 12 month business loan?

A 12 month business loan is a type of short-term finance, typically repaid in monthly instalments within a 12-month period. Unlike long-term loans that can stretch over a few years, these loans give you quick access to funds that you repay within a short period of time.

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Why consider a 12 month business loan?

But why would you consider a 12-month loan for your business? Here are a few common reasons why you should consider them:

Quick approval and funding

Many 12 month business lenders transfer funds within days (or in some cases, the same day) of your application, so speed is one of the most common reasons business owners apply for a 12-month loan. Getting access to funds this quickly can be very useful if you have unexpected expenses crop up or if there’s a time-sensitive opportunity you want to take advantage of. Perhaps your supplier has bulk discounts, or you need to stock up for a seasonal period.

Less long-term commitment (and it’s cheaper)

Taking out a 1 year business loan means you’re not tied into a long-term debt commitment. Instead, you repay quickly, minimising your debt exposure. A short-term loan like this can also mean you end up paying less in total for your loan. That’s because you’re not repaying interest for years, either.

Flexibility for various business needs

As long as you spend it for business purposes, you can spend your short-term loan however you want. Use it to pay for emergency repairs, cover cash flow, invest in stock, hire employees, or refit your store. However you spend it is up to you.

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When should you consider a 12 month loan?

Sometimes, a longer-term loan might be more suitable for you, but there are specific circumstances where a 12-month loan makes financial sense:

You run a seasonal business

If your business is seasonal, i.e. a store preparing for Christmas, you might need a fast business loan to help you hire temporary staff or stock up ready for the busy period. Apply when you need it and see funds in your business bank account only a few hours after approval.

You need to bridge cash flow gaps

Let’s say you’re facing an unexpected bill, your supplier payment terms shorten, or your equipment breaks down, you might not want to dip into your cash reserves. Instead, a 12-month business loan can help you bridge these short-term cash flow issues and keep operations running smoothly.

You want to take advantage of business opportunities

Business opportunities aren’t around for long; maybe your supplier is offering a bulk discount if you pay the same day, or a competitor has announced a new sale. Whatever the opportunity is, you might need cash to make it happen. Applying for a 12 month business loan can help you seize these opportunities with both hands.

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How do 12 month business loans work?

Understanding how these loans work can help you make an informed decision about whether this type of finance is right for your business needs.

Apply for the loan

You can apply for a 12 month business loan online through our self-service platform. First, you can find and compare lenders offering these loans to check you’re getting the best deal. Then proceed with your loan application through the lender’s website.

Most lenders will need basic business information, bank statements, reasons why you need the loan, and the loan amount and term you’re looking for. They’ll assess whether you’re eligible based on your ability to make repayments, your creditworthiness, and annual turnover.

Interest rates and costs

Short-term loans up to 12 months are usually unsecured, so you can expect to pay higher interest rates. Although you pay higher interest rates, you usually end up paying less overall. That’s because you’re repaying inside a shorter timeframe.

Be aware that it’s not just interest rates you should factor into your lending decision. Some lenders charge arrangement fees and early repayment charges. That’s why it’s important to use a business loan calculator to help you determine rough borrowing costs to check if you can afford it.

Repayment structure

You typically repay 12 month business finance in fixed monthly instalments. These fixed payments can help you budget business expenses. Some short-term flexible loan options (like a merchant cash advance) let you repay more of your loan when business is good, helping you keep your repayments in line with your income.

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Types of 12 month business funding

You have a few short-term loan options to consider:

Unsecured business loans

Unsecured loans are common for 12 month loans. That’s because the application and approval processes are quicker with less admin work (no asset valuations needed). That means you get funds quickly. Apply for between £1,000 and £500,000 with our lenders.

Secured business loans

If you have a high-value asset like commercial property or equipment, you will likely secure better rates with a secured business loan. You can also access higher loan amounts (in excess of £2 million), but you might find these difficult to repay within a one-year period.

Merchant cash advance

A merchant cash advance can be a great funding option for businesses that process card payments. The lender gives you a lump sum payment (up to £500,000 through our lenders) and you repay it as a percentage of your future card sales. This means repayments fluctuate with your sale,s making them more manageable.

Invoice finance

Invoice finance is a great short-term funding solution. You can sell one or multiple invoices to your lender as and when you need to free up some cash from unpaid invoices. The lender can send you up to 95% of the unpaid invoice amount and take their fee from the outstanding balance before sending the rest to you.

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Alternatives to 12 month business loans

Before you commit to a 12 month commercial loan, it could be worth considering alternatives.

Business overdrafts

If your cash flow ebbs and flows, it’s important to have a financial backup. That might mean dipping into savings, but it can also mean accessing a business overdraft. They’re convenient and offer business owners ultimate flexibility. So, should expenses exceed your usual amount, payments will be taken from your overdraft. This means bills and supplier payments are paid on time, and you only pay interest on the money you use, keeping the cost of lending controlled.

Business credit cards

If flexibility is what you’re looking for, a business credit card can provide that. Access funds as and when you need them up to your agreed limit. And only pay interest on the money you use, or enjoy interest-free if you can pay the balance within the interest-free period. This revolving finance facility means you can repay the funds and access them all over again.

Small business loans (with longer terms)

Repaying a loan within 12 months is doable, but it can also stretch your finances unnecessarily. If you can’t comfortably repay within 12 months, you might want to consider a longer-term small business loan. This would lower your monthly repayments considerably.

Asset finance

If you want to buy equipment or vehicles, asset finance might be more suitable for you than a 12-month business loan. The asset serves as loan security, which helps you access more competitive interest rates. The cost of the finance is spread over the useful life of the asset, making it more cost-effective than purchasing the asset outright.

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What to consider before applying

Applying for a loan to invest in your business can be a game-changer for your growth, but there are a few things you need to consider before applying.

Can you afford the repayments?

This is the first question you should ask yourself. If you can comfortably afford repayments, don’t apply. Wait until you’re in a more stable financial position. Defaulting on your loan can severely damage your credit score. You should be able to afford repayments without the outgoings affecting your day-to-day business operations.

What's the total cost?

It’s not just the loan amount you need to repay; it’s the interest rate and any other fees or charges the lender puts in place. Other costs can include early repayment charges or arrangement fees. Always read the loan terms and conditions carefully before accepting them; they’ll outline the total costs repayable.

Do you need the full amount?

Always apply for the amount you need rather than want. You pay interest on every pound you borrow, so lending any more than you need can cost you a lot of money. If you use the loan and repay it and need more funds, you can always apply for another loan.

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Finding the right lender

Comparing loan products on the market means you can find the most suitable finance type and also access the best rates. Use our free loan comparison tool to compare eligible loans.

Not all lenders have the same lending requirements or loan products. Some can better support certain business types or lend particular amounts.

Online comparison platforms like ours let you explore multiple loan options instantly. You can see what's available based on your circumstances without committing to individual lenders.

Looking to secure a one-year business loan? At Capalona, we help thousands of UK businesses compare loan options using our free comparison tool. Discover what finance is available for your business and compare multiple lenders in minutes.