How to get a short-term business loan

Key takeaways

• Short-term business loans can help a business pay unexpected bills, cover gaps in cash flow or pursue time-sensitive opportunities

• Lenders may look at your turnover and credit record, alongside any existing debts, to decide whether your business can afford the repayments

• Short-term borrowing can cost more than longer-term options, so compare interest rates, fees and loan terms before before applying for a business loan

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What is a short-term business loan?

A short-term business loan is a type of finance that you repay over a short period of time - usually between three and 24 months.

Businesses may opt to use short-term loans to cover more immediate or temporary funding needs instead of using it for larger purchases. You might use one to manage a temporary cash flow gap for example, or to buy stock for a busier trading period coming up.

Key features to know:

• Short repayment terms: You repay the loan within a few months rather than over several years

• Regular repayments: Depending on the lender and the loan’s terms, you may make repayments weekly or monthly

• Faster access to funds: Some lenders can make decisions and release funds more quickly than they would for long-term loans

• Higher repayment costs: Short-term borrowing often comes with higher interest rates or fees

• Different loan types: You can find secured and unsecured options, depending on the lender and your business's circumstances

How do short-term business loans work?

A short-term business loan gives your business access to finance that you repay over a short period of time. The specifics vary between different types of loans, but this is how they work generally:

1. Receive the agreed amount

The lender provides a set amount of money, usually as a lump sum paid into your business bank account or as a credit facility you can draw on.

2. The lender adds interest or fees

You pay a cost for borrowing the money. This may take the form of interest, fixed fees or a combination of both - it depends on the type of business loan.

3. Understand the repayment terms

You repay the amount borrowed (plus any interest and fees) over an agreed term. Short-term business loans tend to run for a few months rather than several years.

4. Make regular repayments

Repayments may be weekly or monthly depending on the lender and type of finance you go for. You continue making your repayments until you repay the loan in full.

What can I use a short-term business loan for?

You can use a short-term business loan to cover a wide range of business activities and needs, such as:

• Covering short-term cash flow gaps

• Boosting working capital to help with daily running costs

• Paying wages or bills

• Buying stock or raw materials

• Funding fluctuating seasonal demand

• Covering unexpected expenses

• Repairing essential equipment

• Supporting a new marketing campaign

• Taking advantage of a new business opportunity

Pros and cons of getting a short-term business loan

Short-term business loans offer quick, flexible funding, but they also come with their own set of drawbacks too. 

Pros

• You can often access funds quickly, especially through online lenders

• Short repayment terms help you to clear the debt sooner

• You can use the money to cover a range of business costs and opportunities

• Some lenders offer unsecured options, meaning you don’t need to provide an asset as security

Cons

• Short-term loans may come with higher interest rates or fees compared to long-term borrowing

• Frequent repayments can put additional pressure on cash flow

• You may have less time to repay the loan, making for more expensive payments 

• Some lenders may offer lower borrowing limits than longer-term finance

Does my business qualify for a short-term loan?

Wondering if you’re eligible for a short-term loan? Individual lenders each have their own specific criteria, but generally a lender looks at a few key areas of a business before making a decision.

Common eligibility criteria require you to:

• Be aged 18 or over

• Be a UK resident

• Run a UK-based business

• Have a UK business bank account

• Be authorised to apply for finance on behalf of the business

What to look for when comparing your options

Short-term business loans vary considerably in terms of how much they cost and their structure. Here, we breakdown some important things you should consider when searching for a short-term loan that fits your business. 

Total cost of borrowing

Work out how much the loan will cost from start to end. This includes interest alongside any arrangement or account fees. Our loan repayment calculator can help you estimate what the repayments might be and the total borrowing cost.

Interest rate

Compare the interest rates on offer, but remember that the rate you’re offered depends on your business and financial circumstances, and any headline rate isn’t guaranteed.

Repayment term

A shorter term helps you to clear the debt sooner, but it also increases the amount you need to repay each time. It’s important you make sure the repayment schedule fits your business’s cash flow and won’t leave you in a difficult position.

Repayment frequency

Some lenders collect repayments on a monthly basis, while others set a weekly or even daily repayment schedule. Understand how often you need to pay and ensure the schedule works for your business.

Fees and charges

Look for arrangement fees, late payment charges and any other costs that could increase the price of the loan.

Early repayment

Check if the lender lets you repay the loan early and whether it charges a fee for doing so. An early repayment charge could undo any savings you make by paying it off early, so this is important if you’re planning to pay it off in full before the term ends.

The interest rate and loan terms you receive depend on factors such as your business circumstances, credit profile and the lender’s assessment. The rate you see advertised may not be the rate you receive.

Compare short-term business loans with money.co.uk

If you think a short-term loan could help your business plug a cash flow gap or address some immediate spending concerns, now could be a good time to start researching your options. The money.co.uk business loan journey helps businesses like yours discover what options are available.

We help match up businesses with relevant finance options from a range of different lenders, so you can focus on products that may align with your circumstances, rather than going after products that don't.

You can check your likely eligibility for free with a soft search without it appearing on your credit file and affecting your credit score. If you decide to then complete a full application, the lender may carry out a credit check.

What do I need to apply for a short-term business loan?

Lenders usually ask for information about you, your business and its finances before they decide whether to offer you a loan. Requirements vary lender to lender, but you may need to provide some or all of the following:

• Your personal details and proof of identity

• Your business name, address and company details, including details of any additional company directors

• How much you want to borrow and your plan for the money

• Details of how long your business has been trading

• Your business’s turnover

• Recent bank statements

• Business accounts and tax returns

• Details of any existing borrowing you or your business have

• Permission for the lender to carry out business or personal credit checks

Having this information ready before you apply can make the process quicker and helps the lender assess whether your business can afford the repayments.

How to apply for a short-term business loan in 4 steps

Once you’ve found the right short-term loan for your business, it’s time to make an application. Here’s how to do it:

1. Decide how much you need to borrow

Work out how much funding your business needs and what you plan to use it for.

2. Check the eligibility criteria

Review the lender’s specific eligibility requirements to see whether your business is likely to qualify before you apply. This can save you from an unnecessary rejection.

3. Gather your documents and apply

Prepare the information the lender asks for, then complete your application either online or through the lender directly.

4. Review and accept the offer

Read the loan terms carefully before you accept. Check the repayment amount and schedule, then sign the agreement when you’re happy to proceed.

Practical alternatives to short-term business loans

A short-term loan is not the only way to cover a funding need for your business. Depending on your circumstances, you could also consider:

• Business credit cards: Useful for smaller purchases and short-term expenses, especially if you can clear the balance quickly

• Business overdrafts: Flexible access to extra funds through your business bank account- useful when cash flow is tight but can be expensive if used often

• Invoice finance: Access money tied up in unpaid invoices and avoid waiting for customers to pay

• Start Up Loans: Government-backed personal loans designed for business use. They can help eligible new or early-stage businesses secure funding.