Short Term Business Loans

At some point, most companies, big or small, are likely to need a quick injection of cash. This is where short-term business loans can offer the solution you need for your business.

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  • Find out how much you could borrow
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Written by Simon Moorcroft | Reviewed by Jamie Moorcroft | Updated: June 18, 2024

What is a short-term business loan?

A short-term business loan is a loan you take out and repay over a shorter period of time, usually within three months to a few years. This type of finance can be accessed by all kinds of companies, both startups and established companies.

So, if you’re looking to repay your loan over several years, this product might not be suitable for you. Instead, check out our longer-term loans and repay in five years or more.

How can short-term finance help a business?

There are many ways a short-term business loan can benefit your business. We explore a few of the most common reasons why businesses need short-term finance:

  • Quick boost of working capital. You need working capital to invest in new stock, explore new markets, reach new customers and generally grow your business. Short-term finance gives business owners the opportunity to do all that and more.
  • You’re not in debt for long. Although applying for a loan is taking on debt, short-term loans are repaid usually within months to a few years. That means you’re not taking on long-term debt.
  • Build your credit score. If you’re looking for ways to improve your credit score, taking out short-term business finance or a business credit card can help you do just that. Making timely repayments shows lenders you’re trustworthy and reliable and can give you access to better financial products in the future.
  • Fix temporary cash flow problems. A short-term loan can’t solve long-term cash flow problems or large debt consolidation, but if your cash flow problems are just a blip, then you can consider applying for short-term finance. And get your cash flow back on track with an injection of cash.
Small business owner applying for a short term business loan

Different types of short-term business loans

Here are some examples of short-term loans you can apply for:

Unsecured and secured business loans

Business loans are paid as a lump sum into your business bank account, and repayments are usually monthly. They can be either unsecured or secured. An unsecured loan is quicker to apply for but can include signing a personal guarantee, while a secured loan is secured with collateral like a vehicle or property. Loan repayments can be flexible, with repayment periods as short as one month.

Merchant cash advance

If you accept credit or debit card payments and turnover roughly £2,500 a month, then you might want to apply for a merchant cash advance. It acts like an advance of your future sales. You can repay as a percentage, so that means if you have a financially difficult month, you repay less. Merchant cash advances are usually repaid within 18 months, so they’re a perfect short-term financing solution.

Invoice finance

Invoice finance allows companies to release cash tied up in outstanding invoices, which means that rather than waiting months for customers to settle an invoice, a lender will advance you a proportion of the invoice amount (up to 95%), often within the same day.

Our funding partners also give you the option to fund more invoices in the future if and when required, or they can set up a facility to manage your invoicing and cash flow as part of the service. This type of short-term finance means you can access money quickly, and pay the lender fees within a short period of time i.e. however long your invoice payment terms are.

Line of credit

A line of credit is a limited sum of money that you can tap into as and when you need to bridge any cash flow gaps. This acts as an alternative to an overdraft facility — the funds are there for you to access quickly, for example, if there’s an emergency, and draw down whenever you need them. The repayment terms are pre-agreed with the lender, you can repay what you use as quickly as you want.

Compare lenders for any of these products, or check out our other business funding options.

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What are the disadvantages of short-term business loans?

Here are some disadvantages of short-term finance you should consider:

  • Higher interest rates. Because these loans are quick to get hold of, you might find yourself paying higher interest rates — this is purely down to the convenience these loans offer borrowers.
  • Smaller loan amounts. As these loans are typically repaid within a few years, lenders might not agree to lend you the amount you’re looking for. If you’re after a large business loan, consider comparing other loan products.
  • Borrowers can develop an over-reliance. It’s easy to find yourself trapped in a loan cycle. These loans are so quick to apply for that you might find yourself returning for another as soon as you’ve repaid the previous one. Getting into a cycle of debt is never a good idea.
If you find yourself trapped in a debt cycle, contact Business Debtline for free debt advice.

What are the typical interest rates of short-term business loans?

Short-term business loan rates will vary depending on your business profile, so it’s a good idea to check the total cost of the loan against different loan terms. It’s also important to check whether the interest is repaid monthly or annually, as this can vary from lender to lender.

Always work out how much you can afford to repay based on the total cost of the loan (which includes the interest rate).

Check out our short-term business loan calculator. This will give you an idea of the payback amount based on the cost of the loan. We would always advise getting a free quote, which will give you the most accurate idea of the cost.

ProviderRates fromLoan amounts
Adelpha Capital funder logoAdelpha Capital1.9% Per Month£3,000 - £150,000
Iwoca funder logoIwoca2.95% Per Month£1,000 - £500,000
MaxCap  funder logoMaxCap 1.28 - 1.40 Factor Rate£10,000 - £250,000
The Start Up Loans Company funder logoThe Start Up Loans Company6% Per Year£500 - £25,000
Compare rates from over 38 funding options

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Can I get a short-term business loan?

Whether you can apply for short-term finance will depend on your financial circumstances, how much you want to borrow, and your reason for borrowing. Most online lenders’ application process is assessed on a case-by-case basis, making finance much more accessible than traditional lenders.

If you meet the below criteria, you might be eligible to apply for a short-term business loan:

  • Over the age of 18
  • Not declared bankrupt
  • UK-registered business
  • High-value assets, like commercial property (for secured loans)
  • Good credit score or willing to sign a personal guarantee (for unsecured loans)
  • Have a UK bank account
Lender criteria differ; some lenders require a minimum turnover, so always check the specific eligibility criteria for the loan you’re considering.
Delicatessen owners behind the counter

Can you apply for a short-term loan with bad credit?

Yes, you can. However, if you have bad credit, interest rates might be higher, loan amounts could be smaller, and your choice will be reduced. There are plenty of online lenders willing to accept loan applications from all credit scores.

How to apply for a short-term business loan

You should always compare what’s out there before settling on a loan product. That’s where our free loan comparison tool comes in handy. Our self-serve tool lets you find and compare multiple lenders in one place.

In seconds, you can compare interest rates, total repayable and more. Compare short term finance options here.

About the author

Simon Moorcroft
Written by Simon Moorcroft

Money Writer, Director and Co-Founder

Simon has over twelve years of experience in consumer and business finance. Simon is a Co-Founder and Director at Capalona and heads up the technology team, who utilises the latest technology to assist our customers in finding fast finance.

Updated: June 18, 2024
Published: December 06, 2018
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