What is a short-term business loan?
Short-term loans are ideal for businesses in need of an injection of cash, who don’t want to be paying off debt for years to come. Most agreements are under 12 months in duration.
They can provide significant funds – amounts of £5,000 to £25,000 are routine, and it can be possible to borrow considerably more.
They can be simple to arrange. With most types of Short-term Finance, the lender will make a full, upfront transfer directly into your business bank account as soon as the loan is agreed. However, unlike most forms of business borrowing, repayments are usually structured over a few months rather than a number of years, helping you clear your debt and remove any drain on your cash flow in the shortest possible time.
Why get a short term business loan?
Some can be challenges you may need to find financial answers to. You might need to find a fast answer to short-term challenges, like an unexpected bill from a supplier or the taxman, or a seasonal downturn that leaves you with a reduced cash flow.
But you could also find that an opportunity comes along that is too good to miss, even if your cash reserves are short.
Buying in stock or equipment at a bargain price, taking on a new contract that needs gearing up to deliver, or simply funding the next step in your expansion plans could all be easier with extra cash. Access to finance is vital, but you might be wary of making a long-term financial commitment simply to answer a short-term lead.
If you're a business owner looking to grow your business. Speak to Rangewell today, we'll discuss your monthly payment, repayment fees, and we'll find flexible repayment terms to suit your needs.
What can short term business finance be used for?
Your average short term business loan will be used for working capital such as staff salaries, goods and services. Short term business loans can range from a period of time from a month to a year and can usually be processed by a specialist lender such as those at Rangewell.
Worried about unpaid invoices? We can offer short-term financing to help your cash flow. If you're a limited company or sole trader - speak to us today to learn more about a type of loan to improve your business.
Your bank may not be able to help
The traditional answer to short-term funding needs was to turn to your bank. But many high street banks have made lending more difficult in the wake of the 2008 credit crunch. Even those who may be prepared to provide an overdraft facility or business credit card will place strict limits on the total amount of credit they can advance your business.
Fortunately, at Rangewell we know the many new lenders who have come to the market in recent years, including those specialising in short-term finance.
Not sure a short term loan is right for you? We can talk to you about merchant cash advance and invoice finance. Our lenders will offer competitive interest rates and flexible repayment periods to suit your needs.
What are the different types of short term business loans?
Short-term loans can come in various forms, and here are just a few examples:
Most short-term finance is unsecured, which means it is not secured against your assets or those of your business.
This means that if your business does not repay the loan, the lender cannot seize your assets. This decreases the risk to you, although it increases the risk to the lender, and the interest rates may be a little higher as a result.
You will, however, need to agree to a personal guarantee to repay the loan, which means that the lender will approach you as a director if your business fails to pay.
Unsecured borrowing is often used to provide cash lump sums of up to £25,000.
It may also be possible to arrange short-term lending as secured finance, which means that lending will be secured on assets such as your business premises or your home. This can reduce interest rates, although the application process will take considerably longer. Because it is necessary to provide a valuation report on the assets used, it may take 3 weeks to complete the decision-making process.
There is no set limit to the amount you can borrow with a secured short-term loan. If your business has sufficient cash flow, and a sound business case that will show how you will use the money and how it will generate the funds to repay, it is often possible to provide £million plus funding deals.
What are the advantages of a short-term business loan?
One major advantage of unsecured borrowing is the speed at which lending can be arranged. Having cash can be vital when you want to secure a bargain, or to find the fastest solution to a challenge.
With smaller sums, it is often possible to provide the whole decision-making process from application to transfer of funds into your business bank account in as little as three days, and some providers may be able to provide funding even faster than that.
With online providers paperwork will be minimal, ensuring that your application can be processed and your funds released in the shortest possible time.
What are the disadvantages of short-term business finance?
A short-term loan is helpful, but it will also come with some disadvantages.
- The interest rate of short-term loans will be higher than that of long-term loans. In addition, short-term loans will come with more significant monthly payments. This will mean more money will be needed to pay off debt.
- Short-term loans can be easily obtained, so they can lead to more regular borrowing. If you cannot repay the agreed amount of a short-term loan, you can find yourself requiring another loan.
- A short-term loan can be good to build up a credit score. But if you can't afford to repay the loan, the consequences are enormous. The new debt will cause a decrease in credit rating.
Is my business eligible for a short-term business loan?
Typically, to be eligible for a short-term business loan, you'll need to have been trading for a minimum of 18 months as well as earning a turnover of at least £80,000 yearly.