Should I get a short-term business loan?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
30th November 2020
2 minute read
Have you been thinking about getting a short-term business loan? Borrowing money for a few months can sometimes be necessary for covering an expensive period during the year, or to make small improvements to your current offering.
If you’re unsure whether to take the plunge, we’ve put together all of the relevant information we can think of on business loans, so you can make an informed decision. Read on to find out whether this form of borrowing is right for you and your business.
What is a short-term business loan?
- Small lump sum to spend straight away
- Borrowed over a short period, pay back in instalments
- Interest rates are higher, but you won’t pay close to the full amount if you’re borrowing for a few months
- Designed for business owners
A short-term business loan is a financial product designed for business owners who would like to borrow money over a small period of time. Since the repayment period is so short, the loan amount is usually much smaller than a standard business loan.
This type of borrowing will cater to business owners who would like to cover additional expenses during a busy period of the year, but are able to pay back the amount relatively quickly. This might be an unexpected expense or could well be a planned loan that suits your circumstances.
How do I know if it is right for my business?
Whilst getting a standard business loan might seem preferable, there are certain circumstances where a short-term business loan might just be a more suitable solution for your business.
Ask yourself the following questions to find out whether you should consider a business loan:
- Do you have an expense that needs paying immediately? – usually you will have identified an expense that needs paying over a short period and needs to be paid very quickly
- Can you repay the loan amount within a short period? – a short-term business loan is only viable if you’re able to repay the loan within the short period that is offered. If it will take you longer to repay, you might be better off searching for a standard or long-term loan instead
- Has your business been in operation for more than 18 months? – if you own a business that is still fairly new, you might have trouble being accepted as you won’t have had enough time to build up a good enough credit rating
- Are you already borrowing money? – if you are already borrowing money or have multiple debts still left to repay, getting a short-term loan is not the best idea
- Do you have a good credit rating? – if you have had problems with repaying business loans in the past, you may need to improve your credit rating prior to borrowing any more money
What are the benefits of a short-term business loan?
Before you go ahead and start applying for finance, have a read of the following advantages of short-term business loans:
- Cover unexpected expenses
- Borrow quickly and have the funds in your account within a few days
- Pay back over a short period
- Pay less interest than a long-term loan
What are the disadvantages of a short-term business loan?
While this type of borrowing might seem like a good idea, it can often come with several drawbacks compared to other forms of borrowing. Make yourself aware of the following disadvantages before you apply for a business loan:
- Interest rates a lot higher as the loan term is much shorter
- Repayments are likely to be expensive, depending on how short the loan term is
- Early repayment usually comes with an additional charge
- Failure to repay your loan can result in further fees and penalties
Start comparing short-term business loans
If you feel that a business loan is right for you and your business, why not start your search today? Head over to our business loan portal powered by Funding Xchange using the link below to find the right business loan for you.