Short-Term Business Loans

Learn all about short-term business loans.

Updated: May 20, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Rebecca Goodman

Edited By

Rebecca Goodman

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There are many reasons a business would consider getting a business loan. Maybe you need extra cash to fund a new project or simply bridge temporary cash flow gaps.

Business loans are very common, both long or short-term loans are there to help your business.

There are lots of short-term business loans to choose from and you'll want to look at things like term length, the amount you need to borrow, interest rates, and affordability. 

In this article, you'll learn all about short-term business loans, how they work and the pros and cons. We've also picked out some of the best short-term loans for businesses.

ProviderScoreDetails
1. Funding Circle★★★★★Click Here
2. British Business Bank★★★★★Click Here
3. CubeFunder★★★★Click Here
4. Metro Bank★★★★Click Here
5. Tide★★★★Click Here
6. Iwoca★★★★Click Here

What is a short-term business loan?

Short-term business loans are designed to help businesses with extra funds for a short period.

Typically, a short-term loan starts from one up to 12 months. Some finance providers may allow you to apply for a longer term. Once you borrow the money, you will then need to repay it within the term.

When you repay the loan, you must also pay interest on the amount you borrow. Interest rates are determined before you take out the loan; they can be fixed or variable, depending on your loan provider. If it's a fixed interest rate, this won't change during the term of your loan. This means your repayments will remain the same.

If you choose a variable rate of interest, this could go up or down within the term of the loan.

It's common for small businesses to apply for a short-term business loan as they help purchase stock, hire new employees, bridge cash flow gaps, and more.

There are two types of business loans you should keep an eye out for:

  • Secured loans: A loan backed up by some form of collateral; it acts as a security for the repayment of the loan. If the loan can't be repaid, you lose the collateral. Examples of secured loans include mortgages, auto loans, home equity lines of credit and construction loans.
  • Unsecured business loans: An unsecured loan has less risk as you aren't putting up any collateral for it and your business's credit history supports it. Bad credit can affect potential business finances and may reduce your ability to borrow money. Examples of unsecured loans include student loans, signature loans, and credit cards.

Short-term business loans: The pros and cons

Before introducing you to the top six short-term business loans, here we look at some of the pros and cons of taking out a short-term business loan.

Pros

✔️ Quick approval: The approval and business loan application process for a short-term loan is usually faster than for long-term business loans, and there is minimal paperwork. Typically, a short-term business loan is accepted within 24 hours.

✔️ Cost-effective: Short-term loans, like long-term loans, allow you to pay off your balance in months rather than years. So, you'll pay less interest on what you borrow and won't worry about potential long-term debt. However, the overall interest rate could be higher.

✔️ Convenient: Short-term business loans are convenient if you need to borrow money for your business and you’ve not got a lot of time. You can use a business loan to hire new employees, bridge cash flow gaps, and other essential business needs.

✔️ Less strict criteria: Short-term loans are considered less risky for lenders as there are shorter repayment terms, and usually, a short-term loan amount is lower than a long-term loan.

Cons

❌️ Smaller loan amounts: The amount of money you can apply for with a short-term business loan is typically less than what you can get from long-term business loans.

❌️ High interest rates: You need to look around for low interest rates. If you're in a rush, you may apply for a quick short-term business loan with high interest rates.

❌️ Expensive instalments: If you borrow £10,000 over 12 months, your monthly repayments would be more than if you were to spread that cost over several years. So, with a short-term loan, your monthly payments are higher but less frequent than a long-term loan.

❌️ Early repayment fees: Some financial providers that offer short-term business finance charge early repayment fees.

Best short-term business loans: Reviews

Whatever your reason for wanting a short-term business loan, from hiring new staff to paying for an unexpected expense, there are lots to choose from. The best option for you will depend on things like the size and nature of your business. To help you decide, we've included a range of business loans in this section.

This list has both short-term loans and others that allow you to take out a loan for up to a year but also allow a more extended period if you want it.

1. Funding Circle Short-Term Business Loans

  • Representative APR: From 8.9% per year
  • Loan size: £10,000 to £50,000
  • Repayment periods: Six months to two years

If you're looking for a loan provider with no fees, then Funding Circle may be your answer. Funding Circle offers short-term business loans with no fees. You only pay the amount you borrowed plus interest. There are no other fees involved for this business loan.

You can check your eligibility within thirty seconds to see if your business will be approved without affecting your credit score. You can apply online for the loan within ten minutes. Once your application is complete, the loan can be approved in at least one hour. The funds should arrive in your business bank account within 48 hours.

You will need a personal guarantee for this loan to help your business qualify. Funding Circle also offers long-term loans, and a FlexiPay line of credit option allows you to spread costs over three months.

2. British Business Bank Start-up Loans

  • Representative APR: 6% fixed
  • Loan size: £500 to £25,000
  • Repayment period: One to five years

If you've not started your business yet but are looking for a loan to get the process started, British Business Bank offers not-for-profit loans to small businesses without a trading history. There is no fee for arranging the loan, and you don't need a personal guarantee.

You can make overpayments or pay off in full without any early repayment fees. You can receive advice and support during the application process if needed, and there is free one-to-tone mentoring for 12 months when your loan application is accepted.

The loan is only available to businesses trading for less than 36 months as this loan is aimed towards small business owners.

3. CubeFunder Short-Term Business Loans

  • Representative APR: Fixed and personalised
  • Loan size: £5,000 to £100,000
  • Repayment period: Three to 12 months

If you're looking for a short-term business loan specialist, CubeFunder may be best suited for your business. CubeFunder offers a fixed repayment plan that matches the cash flow of your business. Interest rates and terms are personalised to each application.

The process to apply for a loan is that it takes less than one minute to apply online, and you'll receive a quick call within 30 minutes from a dedicated customer service team to discuss your funding requirements.

Once you've provided all the necessary documents and determined the lending amount and term, you'll have a final pre-fund check, and you can sign the loan agreement.

To be eligible for this loan, you must have traded for at least three months before application, be a limited company registered in England or Wales, and have a minimum monthly turnover of £4,000.

4. Metro Bank Small Business Loans

  • Representative APR: 9.6% fixed interest rate
  • Loan size: £2,500 to £25,000
  • Repayment period: One to five years

The Metro Bank offers a Small Business Loan of up to £25,000. They also offer bigger loans, subject to different terms with more lengthy repayment terms. There are no arrangement fees for this loan. However, there may be early repayment fees if you repay the loan early.

You can calculate your loan repayments for free on the Metro Bank website before you fill out your application, so you can check the affordability and determine your monthly repayments before signing anything.

You may require a personal guarantee or security over the loan's private property or business assets. You will also need a business current account with Metro Bank.

5. Tide Short-Term Business Loans

  • Representative APR: From 6%
  • Loan size: £1,000 to £500,000
  • Repayment period: One month to two years

Tide works with various partners who offer a variety of flexible business funding solutions, including short-term finance. You simply connect your business bank account to Tide, and you can start comparing business loans without affecting your credit score.

With your loan and connected bank account, you can see your business's cash flow forecasting through Tide Connect. You may be interested in other Tide features, such as Invoice finance, Cash Advance, and more.

Tide will only show you which loans you're eligible for, so you save time looking at all their offers. To apply for a Tide short-term business loan, you must be based in the UK and be a sole trader, partnership or limited company.

6. Iwoca Short Term Business Loans

  • Representative APR: 49% per annum
  • Loan size: £1,000 to £500,000
  • Repayment periods: Three to 24 months

You can take out a short-term business loan with flexible repayments fit for your business with Iwoca. There are no early repayment fees, and the application process is quick and easy. Once approved for a loan, the money will arrive in your business bank account immediately. Iwoca‘s short-term business loans are ideal for small businesses.

Although there is a high-interest rate, interest only accrues while you have the funds. So, if you repay the loan early, you will pay less interest, and there are no early repayment fees. If you need a top-up of funds, you can easily apply for more money whenever.

Iwoca offers other finance options such as large business, instant, working capital, and cash flow loans.

Final thoughts

Business loans are popular and can provide a real financial lifeline. They can help you to pay for more equipment or staff, and to invest in your business. They are also often a better solution than taking out a credit card to pay for these things.

However, they aren't for everyone and they are only suitable if you can afford to repay them on time. You will also want to read the terms and conditions in case there are any hidden fees and look at the overall interest rate when comparing loans. If you're unsure if a business loan is the right finance solution for your business, you could consult a financial advisor.

Related guides:

FAQs

Is It Easier to Get Short-Term Business Loans?

Do You Need a Personal Guarantee for a Business Loan?

What Is a Short-Term Business Loan?

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