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A short-term business loan can be a good option if you don’t want to be tied into a long-term loan and need to raise funds for your business fast.
As a result, small business owners often use short-term business loans to cover unexpected expenses, help with shorter-term cash flow challenges, or to jump on opportunities.
What is a short-term business loan?
Short-term business loans are business loans that are repaid relatively quickly. This means repayment terms on short-term loans for businesses tend to be somewhere between three months and one year. Some lenders may offer shorter or slightly longer terms, though two years is probably at the upper end for a business loan to be classified as short.
How do short-term business loans work?
A standard short-term business loan tends to work like a personal loan you may take out yourself – the main difference is that your business is doing the borrowing and not you.
The loan amount borrowed, plus interest, is repaid in regular instalments over the agreed repayment term. As long as the repayments are made in full and on time, everything should be paid off by the end of the loan term.
Most short-term loans are unsecured business loans, and don’t require an asset be put forward as security for the loan. This helps explain why shorter term loans for businesses are often quicker and easier to arrange.
Secured short-term business loans are also available, but are likely to take longer to arrange. This is due to lenders needing to value assets and the extra legal work involved.
» MORE: How do business loans work?
Can I get a short-term business loan?
Eligibility criteria for short-term business loans tends to vary between lenders but is often less stringent than for some other types of business loan.
Most loan providers require that you, as the business owner, are aged 18 or over and a UK resident. Your business must also be based in the UK.
Many short-term business loans have minimum requirements around the length of time a business has been trading and its monthly or annual turnover. A business’s credit history is usually important too.
Some short-term business loan lenders may also ask you for a personal guarantee. This means you would have to repay the loan from your own personal funds and assets if your business can’t. If a guarantee is needed, your personal credit history will be looked at too.
Can you get a short-term business loan with bad credit?
It may be possible to get a short-term business loan with bad credit, but it’s likely to prove more challenging, and interest rates will probably be higher. Having bad credit also makes it more likely you’ll be asked to provide a personal guarantee, or you may need to take out a secured loan, and provide an asset as security for the loan.
» MORE: Bad credit business loans
Not sure if a short-term business loan is right for you? Our guide to the best small business loans has more options.
How much can you borrow with a short-term business loan?
Borrowing amounts for short-term business loans typically range from £1,000 up to £1 million, but some lenders may allow more or less. How much your business can borrow depends on a few factors. These include what you plan to use the money for, your business finances and how long you’ve been trading, and the lender’s terms.
» MORE: Try our business loan calculator
What can I use a short-term business loan for?
Short-term business loans can be taken out for many reasons, including to:
- help get your start up off the ground.
- buy stock and equipment to help your business grow.
- move to a new premises.
- help manage cash flow.
- cover running costs, such as rent and other bills.
- cover unexpected expenses.
- upskill staff with training.
- hire new staff.
- promote and market your business.
Advantages of short-term business loans
Some of the main benefits of short-term business loans can include:
- Repaying over a shorter period of time can mean paying less in interest overall.
- The application and approval process is often quicker, easier and involves little paperwork.
- It may be possible to get the funds you need the same day.
- Eligibility criteria can be less strict than for other types of loan.
- Can be used for a wide range of business purposes.
Disadvantages of short-term business loans
Some things to be aware of concerning short-term business loans include:
- The interest rates themselves may be higher.
- The short repayment period may mean high monthly repayments.
- Available loan amounts may be lower than on other business loans.
- You may need to provide a personal guarantee.
- They are not the answer to longer-term cash flow problems.
How to get a short-term business loan through NerdWallet UK
Our aim is to match you with short-term business loans that suit your needs. The loans highlighted from our panel of providers will also be the ones that give you the best chance of being accepted. To get funding fast, without affecting your credit score:
- Answer a handful of questions about you and your business, so we know what you’re looking for.
- Get matched instantly with the loans from our panel of lenders you’re most likely to qualify for.
- Compare loans and apply to your chosen provider, without having to repeat-fill forms.
» COMPARE: Find short-term business loans today
How does applying for a short-term business loan work?
Many short-term business loans can be applied for online and the process is often fast.
The lender will want to consider your business financials, including trading history and turnover, and will run a credit check to get a view of your business’s borrowing history and credit score. This will help the provider to decide if it can offer the loan and the interest rate they will charge. There may also be a personal credit check on you.
The paperwork required for short-term business loans is often relatively light. But you will need to supply basic business information, including annual turnover, and may be asked to supply recent business bank statements. You may also need to say how you intend to use the loan.
What are the alternatives to a short-term business loan?
If a short-term business loan doesn’t seem the right option for you, some alternatives may include a:
Short-Term Business Loans FAQs
An unsecured business loan is often considered one of the easiest business loans to get. This is because it doesn’t usually require any collateral or security for the loan. Many short-term business loans are unsecured.
Instant short-term business loans typically provide businesses with quick access to funding which will be paid back in a relatively short period of time, usually within one or two years.
Some lenders offer short-term business loans to start up businesses but others don’t. Check a lender’s qualifying criteria around trading history and turnover to find out.
Some business loans are considered short term, usually if they must be repaid within one or two years. If a repayment period on a business loan is longer, then it may be considered a long-term business loan.
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