What is a short term business loan?

A short term business loan is a type of business loan designed to provide a company with relatively quick access to funds. Short term loans are typically meant to be repaid within a shorter time period, often ranging from a few months to a year, although the exact duration can vary depending on the lender and the specific terms of the loan.

Short term business loans are commonly used to address temporary cash flow gaps, manage unexpected expenses, purchase inventory or equipment, meet payroll, or take advantage of time-limited business opportunities. They can be especially useful for small businesses that require quick injections of capital to navigate seasonal fluctuations.

Due to their shorter repayment period, short term business loans often have higher interest rates compared to long term business loans. Lenders may require less strict requirements and not need assets to be used as security for short-term loans. 

It's important for businesses to carefully consider the terms and costs associated with short term loans, as the higher interest rates and quicker repayment schedules can impact cash flow. 

How does a short term business loan work?

From seasonal fluctuations in revenue, to increased VAT bills and other periodic shortfalls in working capital, small businesses are often faced with the need to plug temporary cash flow gaps.

Short term business loans can be a great option if you’re in sudden need of cash, but don’t want a loan with a long term commitment. 

Here’s how a short term business loan works:

  1. Use the business loan calculator to see how much you could borrow with a short term business loan 
  2. Start your business loan application, providing supporting documentation such as 6 months business bank statements and your last set of filed accounts. 
  3. Speak with one of our funding specialists who will help you find the best lender for your business 
  4. Apply up to 4 lenders in one application
  5. If successful, you’ll receive the funds into your bank account
  6. You will repay the lender each month until the term length is over, this is usually a maximum of 12 months.  

Why use a short term business loan? 

Get the funds your business needs without lengthy repayment terms.

  • No long term commitments

Short term business loans are ideal for businesses in need of a quick capital boost coupled with the capacity to repay the balance in just a few, affordable repayments. You won’t have to worry about a long term commitment as the loan will be repaid within a matter of months. 

  • Multi purpose loan

From tax and utility bills, to emergency repairs and asset upgrades, short term business loans can be invested almost anywhere within your company. These flexible, multi-use loans are designed to be easily accessible to businesses with funds usually transferred just a few days after approval.

  • Industry specialists

Providers of short term business finance bring a wealth of experience to the table, which is why we actively work with 100+ business finance specialists who have a proven track record assisting businesses within each sector of British industry.

Who is a short term business loan for? 

In today's economic climate, it can be tricky for small businesses to make accurate, long-term cash flow projections when trying to source a traditional business loan. Short term business financing can be a great resource for such businesses, offering tailored repayments that look at your capacity to make repayments in the coming months, rather than distant years.

To get a short term business loan, your business will need:

A short term business loan is not the best option for a business that is looking to purchase a property, or secure a large amount of funding. This is because the repayments are over a short period of time, meaning your monthly repayments would be too high to manage on business loans for more than £100,000. 

Pros and cons of a short term business loan

Pros of short term business loans

  • Short term loans are often quick to set up, meaning your business could access funds fast
  • Collateral or security is often not necessary, making short term loans a useful options for businesses without high value assets 
  • Short term business loans offer flexibility as they can be used for various purposes, such as managing cash flow gaps, covering seasonal expenses, or managing emergencies.
  • Unlike long term loans, short term loans typically have shorter repayment periods, which means you won't be tied to the debt for an extended period.
  • A short term loan can help bridge temporary gaps in cash flow, ensuring that operational expenses are covered even during slower periods.
  • Successfully repaying a short term loan can help establish or improve your business's credit history, making it easier to qualify for larger business loans in the future.

Cons of short term business loans

  • Short term business loans often come with higher interest rates which can increase the overall cost of borrowing.
  • Repayment schedules for short term loans may require more frequent payments, which could strain your business's cash flow if not properly managed.
  • Short term business loans often have lower maximum loan amounts which might not fully meet your funding needs.
  • The shorter repayment period might limit your ability to invest in longer term growth initiatives or projects.
  • If you're unable to repay the loan within the agreed-upon timeframe, you might be tempted to roll over the loan into a new one, leading to a cycle of debt.

What can I use short term business loans for? 

Short-term business loans are suitable for various business needs, including:

  • Cover fluctuations in revenue for seasonal businesses 
  • Operational costs
  • Bridge cash flow gaps 
  • Purchase new stock 
  • Working capital 
  • Purchase equipment
  • Meet payroll 
  • Expansion
  • HMRC and VAT payments

frequently asked questions about short term business loans

When you sign up to Capitalise, you can access our free funding eligibility check and business loan calculator. This will help you to see if you’re eligible for a short term loan and how much you could borrow. 

You may not be able to get a short term loan with bad business credit, especially if you do not have any assets to be used as collateral for the loan. Some lenders could offer you a short term loan with bad credit, but you would be subject to very high rates due to the increased risk associated. To maximise your chances of getting a short term loan, try to take steps to increase your business credit score.

Short term business loans have a brief repayment period (months to a few years) and higher interest rates. They're used for immediate needs like cash flow gaps. Long term business loans on the other hand have extended repayment periods (usually years) with lower rates. They're for larger investments like equipment or real estate. Short term loans require less collateral and have a quicker application process. Long term loans require more documentation and take longer to process. 

Yes, there may be fees associated with short term business loans, such as arrangement fees or late payment fees. It is important to understand these fees before taking out a loan so you know the costs.