Everything You Need To Know:
What Is A Short-term Business Loan? Everything You Need To Know
A short-term business loan is an ideal funding option for both newer businesses and those that have a few more years of trading under their belt. Designed to be repaid over a 1 - 2 year period, the main feature of this type of loan is that it enables business owners to be able to access cash quickly.
This instant cash boost can help companies in need of working capital, without compromising day to day business operations. By applying through SME Loans, you can receive a short term business loan online between the value of £1,000 and £500,000 - and all in a matter of hours.
The loaned money then gets repaid with interest in scheduled monthly payments over a relatively short period of time (most commonly 90 to 120 days).
How Long Is Short Term Finance?
This type of finance gets its name because it is used by businesses over a small period, frequently 3 months to 12 months but terms can range up to 2 years. Due to the fact these loans have shorter repayment terms when compared to standard business loans, there is less overall interest charged and they don’t appear on company accounts after 2 years.
How Can I Get A Short-term Business Loan Quickly?
Before making an application, it’s a good idea to have all your ducks in a row. This will help to speed things up and make the application process run smoothly.
Quick short term business loans are the ideal solution for companies that want to obtain hassle free finance, but there are some things you start to think about as you get ready to apply.
- Most lenders will require that your company has been trading for a minimum of 6 months to 1 year.
- You will need to own a business current account, and have these details to hand.
- There is typically a monthly minimum turnover. SME Loans lenders require a turnover of £5,000+
- If you are interested in a secured short term loan, you need to think about which high-value asset you are putting forward as security.
- Ensure your credit history files and documentation are accurate and up to date.
Are Short Term Business Loans Secured or Unsecured?
There are two types of short term business loans, secured and unsecured. Whilst both these options tend to have higher interest rates than long term loans, because of their shorter repayment term, companies can repay the loan off faster.
Do I Need A Business Account to Apply for a Business Loan?
The majority of lenders offering short term finance will require you to have a business bank account in order to be eligible for their business loans. Whilst some lenders are flexible with this, for tax purposes it is a good idea to keep your personal and business bank accounts separate anyway.
If you haven’t yet set up your business’ bank account, be sure to take time to research different providers and what they can offer you. Compare business current accounts to find out more about their benefits and account opening criteria.
Are Business Loans Based On Personal Credit?
Lenders will look at various aspects of your financial history, both business and personal, when making a decision on whether or not to lend to your company.
They do this in order to build a bigger picture of how much risk you pose to them when borrowing. ‘Low risk’ borrowers are individuals who lenders consider less likely to default on their loans, they often have a strong credit score and history of upkeeping repayments.
If your business’ credit history is blemished, as the owner it is a good idea to monitor the details provided in your personal credit file to supplement this documentation.
Advantages & Disadvantages Is Short Term Finance Right For My Business?
Unlike other business finance products, short-term business loans are the perfect solution for smaller enterprises that need to access funds quickly without making lengthy commitments. The speed and flexibility of short term finance makes it a popular product for busy companies where business is booming and no time can be wasted accessing the funding needed for continued success.
Generally speaking, short-term loans are used when businesses are interested in borrowing smaller amounts of money. Many lenders that offer this finance can provide decisions in less than 24 hours, which makes them a reliable way to source finance for unforeseen emergencies and time-pressing ventures.
Short-term finance is a lower risk funding product. With that being said, you will need to take a look at your company’s specific characteristics and conditions before deciding whether it’s the best route for your business.
The Local Enterprise Partnership Growth Hubs bring together the public and private sector to promote and deliver support for organisations in their area. These Growth Hubs, alongside Gov.uk’s business support helpline are on hand to help companies who are in need of extra advice.
Alternatively, if you think a short-term business loan is what you’re looking for but you have some additional questions before making an application, get in touch with us here at SME Loans and our commercial directors’ can guide you through the process.
What are the Advantages?
The main advantage of opting for a short-term business loan is that you only have to make repayments over a short period of time. This means that taking out the loan won’t harm your business’s finances or implicate growth in the long term. In addition to this:
- Applying is simple, requiring little paperwork;
- It is easier for SMEs to get approved by short-term finance lenders;
- Quick to arrange, short-term loan funds can be accessed in just 24 – 48 hours;
- Because the loan repayment period is shorter, you will pay less overall interest;
- They can be used to fund a range of business purposes and ventures;
- More than ever, short-term business loans are being used to boost working capital and cover a corporation’s operational needs.
What About the Disadvantages?
Like all funding options, short-term business loans come with risks and potential pitfalls.
As the owner or director, before taking out a short term loan online, you should ensure that you have a plan in place for your business to sustainably upkeep repayments without difficulty over the loan term.
Keeping up loan payments prevents defaulting on the loan agreement, which will harm your business’ credit score and decrease the chances of you being to apply for another loan in the future.
Prior to applying for short-term finance, you might want to check out the Business Debtline’s budget tool. This free decision tree helps business owners determine their correct budget and narrow down the ideal funding solution for their company.
It is also important to note that short-term business loans tend to have higher interest rates than medium and long-term loans, so it is important to ensure the chosen lender gets you the best deal possible.
- Lenders can choose to charge an ‘early repayment fee’ when a business pays off their loan before the loan term ends. This is to prevent the lender from losing out on interest you’d have paid for the remainder of the repayment period.
- Because this loan is easier to obtain than other forms of finance, there is potential to get into a borrowing cycle and run the risk of relying regularly on quick short term business loans. Be sure not to balance off an original loan with a secondary one and become financially dependent on external finance.
Short-term Business Finance For All Purposes
Businesses of all sizes and from all industries can make use of short term finance. Startups that have been trading for at least 6 months can benefit from short-term business loans by using them to fund set up costs and operations in their early stages.
Similarly, more established businesses can use external financing to fund growth ventures and expansion, for example using a loan to cover the costs of increasing supplies or making renovations to business premises.
Consider short-term funding to cover the following costs:
- Incorporation fees
- New premises and/or equipment
- Damage deposits
- Advertising and promotion
- Purchasing inventory
- Company website & social platforms
- Recruiting staff
- Staff Training
- Emergency repairs Read More »
- Legal work
- Utilities cover
- Purchasing equipment
- Replenishing inventory
- Staff training
- Advertising and marketing
- Managing cash flow « Show Less
What Are The Characteristics of Short Term Financing?
- Apply online with minimal paperwork and hear back from a commercial director the very same day
- Usually unsecured, but can be secured against business assets if you prefer
- Short repayment periods, typically between 3 months and 2 years
- Can be offered to businesses with adverse credit
- Following approval, funds can be accessed in 24 hours
- Can be used to cover a range of business costs, including emergencies
Getting a Short-term Business Loan Online Everything You Need to Know About Applying Online
Applying for short-term business finance through SME Loans couldn’t be easier. If you think that this funding option is right for your business you should start by filling out our easy online application form.
We will first ask for some basic details that are required to verify your organisation, so be prepared to disclose the:
- Name of your business
- Number of years trading
- Business type (sole trader, limited company)
- Required loan amount
- Average monthly turnover or card sales
The lenders that we work with will also want to find out more about you as the owner or director, so expect to provide contact details including your:
- Title, first name and surname
- Position in company
- Contact details
Once the application form is completed, one of our trusted commercial directors will process it and be in touch by phone in a matter of hours to discuss the details provided. As well as talking through any questions you may have, we will discuss with you the best lending option for our business.
After that, your application will be forwarded to the lender who will contact you to provide a quote and discuss the terms of the loan agreement.
The lender’s terms will include a monthly interest rate and APR which will demonstrate how much your business is expected to pay back each month, as well as how much the total loan will cost.
In the event that circumstances change and you no longer want to go through with the agreement, SME Loans offers a 1-month cooling off period to businesses who apply for a short-term business loan.
After carefully reading through the full terms of agreement, all that is left to do is sign the relevant documentation and return it to the lender. From there you will be able to access the funds from the account provided in just 24 hours.
SME Loans Application
Step 1: Using our online form, verify your company.
Step 2: Fill in your personal credentials including contact details.
Step 3: Read through and accept our terms and conditions.
Step 4: Speak to a commercial director and receive a quote from one of our lenders.
Step 5: Sign the terms of agreement and access funds in 24 - 48 hours.
Will I Need A Personal Guarantee?
Short-term loans are typically an unsecured form of funding, which means they aren’t ‘secured’ by your business assets. Because of this, you should be aware that when you apply for your loan, the lender might ask you to sign a personal guarantee.
Legally binding, a personal guarantee is a signed agreement that in the unfortunate event your company defaults on its loan repayments, you as the director become personally liable for paying back outstanding funds and interest to the lender.
Expert Advice: Not all lenders will ask for a personal guarantee to be signed. They largely depend on the business’ credit score and how much you are interested in borrowing.
How Risky Are Personal Guarantees?
A personal guarantee is a way of providing the lender with confidence that they don’t risk losing the loaned money.
Whilst some people view these guarantees as risky, you probably shouldn’t be taking out a short-term loan if you aren’t confident that your business will be able to pay back the loan repayments on time each month.
Our Qualifying Criteria for Short Term Finance:
At SME Loans it is our mission to help as many businesses as we can get the funding they need in order to succeed. We can help your business provided:
- The business owner is over the age of 18
- It is registered as a limited company or sole proprietorship trading in the UK
- Has been actively trading for a minimum of 6 months
- Has a minimum monthly turnover of £5,000
Excluded business types:
- Chemical manufacture
- Banking and money transfer services
Short Term Business Loan Interest Rates Learn More About Interest and Bad Credit
Are you still unsure about interest rates and bad credit? Learn more about how interest rates and bad credit works when you are applying for a short term business loan.
Short-term Business Loan Interest Rates
As previously mentioned, short-term business loans tend to have higher interest rates than loans that are taken out for a longer period.
Essentially companies pay slightly more for the benefits of speed and flexibility that short-term business loans provide. The good news is that the money paid back each month is fixed, so there won’t be any nasty, expensive surprises along the way.
When applying for a short-term loan, expect to come across the term Annual Percentage Rate (APR).
The Annual Percentage Rate refers to the total amount of interest that will be required to be repaid annually on the given loan amount. The rate takes into consideration all additional fees, thus providing an accurate representation of the full cost of your business’ loan.
Because short-term business loans interest rates can vary from lender to lender, it’s a good idea to check out comparison sites and go through a broker like SME Loans to ensure the best deal possible.
Short Term Business Loans: Bad Credit
When applying for short term business loans online, it is important to remember that your credit score and borrowing history can impact the chances of successful application.
Before approving your application, lenders will check your business’ credit score using a credit reference agency, as these agencies are able to verify a company’s reliability for and upkeep of repayments.
The good news is, short-term business loans are one of the easier finance products to apply for, particularly if your company suffers bad credit. Many companies that suffer bad credit feel discouraged to even apply for finance, with the worry it will taint their credit file further.
At SME Loans however, an imperfect credit score won’t necessarily prevent you from qualifying for the funding your business needs to grow.
While lenders will always take into consideration your credit score, they will also consider your ability to afford the loan and it’s repayments.
In order to boost your business’ credit score, you as the business owner should regularly monitor all financial information provided, to ensure that it is up to date and accurate. As well as this, upkeep good business accounting practice and be sure to:
- Pay County Court Judgements (CCJs) on time
- Pay invoices on time
- Submit business accounts & files by the deadline
- Proactively inform credit reference agencies about relevant business information