Short-term business loans

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Page written by Chris Godfrey. Last reviewed on October 1, 2024. Next review due April 6, 2025.

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Rising costs, late-paying customers, and a slowing economy are enough to put a dent in any business’ cashflow and they’re a major concern for most UK SMEs. Add in unexpected emergencies, or a sudden boost in demand and it doesn’t take much to push a successful business into difficulty. Fortunately, there’s a solution to these problems – meet the short-term business loan – the fast and cost-effective way to support your working capital and keep your business running at full speed.

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What is a short-term business loan?

A short-term business loan is exactly what it sounds like – money that your business borrows and then pays back quickly – usually in less than one year. If you don’t want your business burdened with long-term debt, short-term business funding can be a good alternative – just borrow what you need, pay the money back in short order, and remove the liability from your balance sheet.

Note that the application process for a short-term business loan may be less stringent than for loans of longer duration, and you may receive the funds you need far quicker. However, short-term loans typically cost more than long-term financing, and the maximum sum you can borrow may be smaller than for loans that are paid back over several years.

How does a short-term business loan work?

It’s a simple process:

Complete the application process – usually done online
Provide basic information about your business
Get approved
Receive the money direct into your business bank account – often in 24 hours or less
Use the cash for almost any business purpose
Pay the funds back via fixed weekly/monthly payments or as a percentage of your business turnover
Clear the loan off in less than a year or take out a top-up to refill your loan account

Most business borrowing will require a personal guarantee from the business owner(s) but depending on the type of short-term loan you take out, security (collateral) in the shape of a lien on business assets or property may also be required.

Top tip: Lenders will typically check the credit status of the business, and the business owner(s). Don’t get caught out by an error on your credit records. Always check your personal as well as your business’ credit scores before applying for a short-term loan.

Who is a short-term business loan for?

Almost any type of SME can take out a short-term business loan, although most lenders will need to see that your business is in good standing and has the ability to repay the funds. Additionally, you will usually have had to be trading for more than six months and be a UK-registered business.

Short-term business loans are ideal for covering emergencies or sudden expenses and are especially suited for seasonal businesses that may see large fluctuations in income, or organisations that offer extended credit terms to their customers.

What can short-term finance be used for?

Short-term finance can be used for almost any business purpose:

Boost your working capital to cover cashflow fluctuations
Expand your operations
Buy equipment and raw materials
Secure bulk-purchase savings on inventory
Cover wages, rent, utilities, business rates, and unexpected emergencies
Pay your VAT bill
Pay suppliers quickly to secure early-payment discounts

What are the different types of short-term business loan?

There are many types of short-term business loan:

Small business loan

Small business loans work just like a traditional bank loan. Borrow from £1,000 to £500,000. Repay the loan in a few months or over several years. Security may or may not be required.

Invoice finance

Stop waiting 30, 60, 90 days or more for customers to pay their bills. Invoice finance lets you receive the cash tied up in your outstanding invoices as soon as you raise them. You retain control of your sales ledger. Clients need never know you are using your invoices to raise funds. No added security is required.

Revolving line of credit

Revolving credit works like a standard bank overdraft. Dip into an agreed credit limit as and when you need funds, then pay the loan back as your business revenues come in. Security may be required.

Merchant cash advance

With an MCA, Businesses that accept customer credit and debit cards can borrow against the value of their card sales. As your card sales increase, your borrowing limit goes up. Pay back the loan as a fixed percentage of your card sales. No added security required.

Business credit cards

Business credit cards work the same as personal credit cards, but are in the name of the business, not an individual. Business cards typically have a higher credit limit than personal accounts and higher interest rates than other forms of business borrowing. Security may be required.

VAT loans

Paying your VAT bill late can leave you facing penalties and interest from HMRC. VAT loans re designed to help you pay your tax on time. Avoid penalties and give your business cashflow a boost. The lender pays HMRC direct. Repay the loan over 3, 6, 9, or 12 months. Security may be required.

Short-term business loan calculator

Your loan details

How much funding do you require?

Repayment term

months

Interest rate

This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

Your results

Monthly payments

£-

Avg. monthly interest

£-

Total interest

£-

Total cost of finance

£-

Borrow £

How do I apply for a short-term business loan?

Many lenders offer a ‘one-size fits all’ generic short-term business loan, and a fast application process that gives you an initial ‘yes’ or ‘no’ in minutes. However, as you can see from the menu of short-term loans above, there are many ways to borrow the immediate funds you need, and some types of loan may work better for your organisation than others.

You can start the process to find out which type of borrowing is best for you here. It’s still a fast application, but now you get to choose a short-term loan that’s tailored to your business.

What documents may you need?

Different lenders have different criteria, but it may make the process easier if you have this information available:

Business details – address, contact details, length of time trading, etc.
Cashflow forecast
Balance sheet
List of major customers and suppliers
List of any existing business debtsa

Advantages & disadvantages of a short-term business loan

As with any type of business borrowing, short-term loans have their pros and cons:

Pros

Quicker approval

Most short-term business loans can be secured very quickly. In some cases, an immediate approval and streamlined document processing can deliver the funds into your business bank account the next day

Less stringent application process

Many short-term loans can be secured with just a credit check and a review of basic business information

Pay less interest

Paying the loan back faster means less interest is generated over the course of the loan

Range of loan options

Select the short-term loan that’s best for your business – choose how you repay the funds, the need for security, and the terms and conditions that fit your business structure

Cons

Higher interest rates

Because you repay short-term loans quickly, you will pay less interest than you might if the loan were extended over several years. However, because these type of loans are fast and convenient, many lenders charge a higher interest rate on short-term borrowing

Bigger repayment instalments

Paying the loan back in a short time span means the repayment instalments will be larger. This may put strain on the cashflow of some business borrowers

Smaller loan amount

Short-term business loans typically come with lower borrowing amounts than you may be able to secure with a long-term alternative

Personal guarantees and/or security required

Many short-term loan providers will require a personal guarantee from the business principal(s) and depending on the type of loan you take out you may also have to provide collateral via a lien on your business assets or personal property

When should I get a short-term business loan?

Short-term business loans are an ideal solution to sudden emergencies, or an unexpected dip in cashflow. They can support your working capital during tough times or give you a financial boost to make the most of a new business opportunity. See a short-term loan as a business backstop – there to help you when you need it, but not a drain on your income that’s stretched out over years.

Can I get a short-term business loan with bad credit?

Possibly. Even if your credit score is weak and you’ve been turned down elsewhere, it may still be possible to secure the short-term business financing you need. Providing collateral such as business assets or property as security or bringing in a friend or colleague with strong credit to act as the loan guarantor can often offset a weak credit score. Alternatively, some lenders may still provide an unsecured short-term loan even if your credit is poor, but you should expect to pay a higher interest rate and only borrow a smaller sum.

How do I apply?

Get a grip on unexpected business costs, or sudden dips in cashflow. Register with Swoop to find the short-term loan that fits your business like a glove.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

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Swoop requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

Late paying customers: https://www.simplybusiness.co.uk/resources/sme-insights-report/

Short-term business loan: https://swoopfunding.com/uk/business-loans/quick-business-loans/#

Working capital loans: https://swoopfunding.com/uk/business-loans/working-capital-loans/

Small business loans: https://swoopfunding.com/uk/business-loans/small-business-loans/

Revolving line of credit: https://swoopfunding.com/loans/revolving-credit-facility/

Business credit cards: https://swoopfunding.com/uk/business-credit-cards/

VAT loans: https://swoopfunding.com/uk/business-loans/vat-loans/

Invoice finance: https://swoopfunding.com/uk/business-loans/invoice-finance/

Merchant cash advance: https://swoopfunding.com/uk/business-loans/merchant-cash-advance/

Business credit score: https://swoopfunding.com/uk/business-credit-scores/