Short-term Business Loans Explained

March 5, 2024
Jamie Davies

What are short-term business loans?

Short-term business loans are a type of lending that provides funds to businesses for a short period of time, typically up to twelve months.

A short-term loan can be for as little as one month. Usually they are repayable over three months to one year. 

Finance for business is available in many different forms, designed to solve many different problems. Short-term loans are the solution to the problem of needing an injection of working capital that can be repaid over just a few months.

Reasons for taking out short-term finance through a loan can include:

  • Purchase of stock that will be sold in the months ahead.
  • Hiring of new employees who will then generate more revenue.
  • Costs of moving to new premises.

If your cashflow is interrupted in some way, such as a customer being late in paying a significant invoice, a short-term loan could be the right solution. Alternatively, the funds could allow you to take advantage of an unexpected investment opportunity.

Features of short-term business loans

Every finance provider has their own criteria and terms for short-term loans. However, in general you can expect these loans to be:

  • Quick to arrange (often within 24 hours).
  • Minimal paperwork.
  • Unsecured (although a personal guarantee may be required).
  • May be available even if you have a poor credit history, including CCJs.

The amount you can borrow will depend on your needs and circumstances, and the lender’s willingness to extend credit. Generally, these loans can be from £10,000 to £500,000.

When to choose a short-term business loan

There is usually no restriction on what you can do with a short-term loan. As with most business finance, you decide whether it’s the most appropriate method of borrowing, based on your circumstances.

When considering this option, remember that the costs of short-term borrowing are usually higher than those of longer-term loans. 

As with all commercial funding, you should have a plan for how you will repay what you borrow, including covering the finance costs.

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Alternatives to a short-term business loan

There are many forms of business finance available. Each has developed to meet a different need. Here are some of the alternatives to a short-term loan:

  • Invoice finance or factoring
  • Asset finance
  • Line of credit
  • Overdraft
  • Business credit card
  • Long-term business loan
  • Commercial mortgage

It’s important that you choose the most appropriate form of finance for your business needs. Selecting the wrong method can prove unnecessarily expensive, and could make it more difficult to access other forms of borrowing.

Disadvantages of short-term business loans

While they can be massively useful in certain situations, short-term business loans are not always the best solution to raising working capital.

These disadvantages can include:

  • Higher rates of interest, compared to longer-term loans.
  • Early repayment fees may be charged if the loan is repaid early.
  • Becoming dependent on borrowing, with a succession of short-term loans.

It pays to speak with a professional advisor before taking on any form of loan, to help you decide whether you’re making the best choice.

Eligibility for a short-term business loan

Each lender has their own method of determining whether they will lend to your business. They want to be confident that your business is genuine and that it's profitable.

The criteria typically include:

  • UK registered business, usually a limited company.
  • Turnover of at least £100,000.
  • Accounts on file for at least one year. 

Some finance providers are open to approaches from businesses with a poor credit history. 

If your business is in the start-up phase, with low or no turnover and no accounts on file, you may still be considered for a short-term loan. 

We help businesses secure short-term loans

We take a lot of calls from businesses looking for short-term business loans. Some need funds urgently, to cover a shortfall in their cashflow. Others have identified that a short-term loan is the right choice in their situation.

Our role, as a finance broker, is to match your business with the most suitable finance provider. We work with a panel of over 250 lenders, meaning we have access to products applicable to almost any situation.

The approach we take is to remain with you throughout the loan application process, from initial enquiry through to receiving the funds in your account. One of our team of experts will work with you, keeping you informed of progress at all times.

If you think a short-term business loan would be right for your business, get in touch with us today.

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders  which may vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.

Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority in the UK (FRN 958123).