What is a short term business loan?

A short term business loan is a type of business loan designed to provide quick access to funds. They are meant to be repaid within a shorter period of time, usually ranging from a few months up to two years.

Short term business loans are commonly used to address temporary cash flow gaps, manage unexpected expenses, or take advantage of time-limited business opportunities. They can also be especially useful if your business requires a quick injection 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.  It's important to carefully consider the terms and costs associated with short term loans, as the higher interest rates and quicker repayment schedules can impact your 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

How much does a short term business loan cost?

The cost of a short term business loan can vary widely depending on several factors, including which lender you use, the length of the term and how strong your business credit score is. 

Typically, short term business loans come with higher interest rates compared to long term loans. However, as the length of the term is much shorter, the total cost of borrowing will likely be less for a short term loan.

In addition to interest rates, lenders may also charge fees such as an arrangement fee, or prepayment penalties. These fees can add to the overall cost of the loan so it’s important that you understand all the associated costs before accepting an offer. 

To accurately determine the cost of a short term business loan, you’ll need to carefully review the terms and conditions provided by the lender such as the interest rate, fees, and repayment schedule. Comparing offers from multiple lenders can help you find the most affordable option for your business. When you search for funding with Capitalise, you can apply to multiple lenders with just one application, making it easy to compare your options.

How much can I borrow with a short term business loan?

How much you can afford to borrow with a short term loan will depend on a variety of factors, including:

When you sign up to Capitalise, you’ll be able to check your funding eligibility for free. We’ll use data to give you an estimate of how much you may be eligible to borrow. 

If you’d just like an estimate of how much you could afford, you can use our Business Loan Calculator. This will show you how much your monthly repayments could be and the total cost of a loan, so you get an idea of what you could afford to repay. 

What are the different types of short term loans? 

Here are a few of the most common types of short term loans:

Unsecured business loans

Unsecured business loans don’t require any collateral, which can be useful for businesses without high value assets. They may also have higher interest rates compared to secured loans.

Revolving credit facility

A revolving credit facility is a flexible option that provides businesses with access to a predetermined credit limit. Businesses can borrow, repay, and borrow again up to the approved limit. Interest is charged only on the amount borrowed, making it a cost-effective solution.

Line of credit

A business line of credit offers flexible financing, allowing borrowers to access funds as needed up to a predetermined credit limit. Interest is only charged on the amount withdrawn.

Credit cards

Business credit cards provide flexibility in spending and often come with rewards programs or perks tailored for business needs. However, they may carry higher interest rates compared to traditional loans.

No personal guarantee  (PG) loans

No PG loans don't require a personal guarantee from the business owner. A personal guarantee holds the borrower personally liable for loan repayment in case the business defaults.  

Startup business loans

Startup business loans are specifically designed for new ventures lacking a substantial financial track record.

Quick business loans

Quick business loans are ideal for companies in urgent need of funds. You can get a quick business loan with Capitalise’s Instant Offers. The application process is streamlined and the approval process is much quicker, meaning you can draw down funds in as little as 48 hours. 

Merchant cash advance

Merchant cash advances provide a lump sum upfront with repayments made through a fixed percentage of daily sales. This makes it suitable for businesses with fluctuating revenue, such as retail shops, or restaurants.

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.

Yes, a short term loan and a revolving credit facility are different financial products, each with its own characteristics and purposes.

A short term loan provides a lump sum amount with fixed repayment terms over a specific period of time. While a revolving credit facility offers access to cash that can be borrowed, repaid, and borrowed again within a set credit limit.