Short-term Small Business Loans in the UK

Managing a business is tough, especially when you are low on working capital. Especially when some unexpected circumstances come a-knocking. Cash flow is sure to get tight in some places, whether you need to fulfill big orders quickly or compensate for any unfortunate property damage. A short-term business loan could help you tide over such small messes.

But before you consider a small business loan, these are questions you should be asking yourself:

What is a short-term business loan and how does it work?

As the name suggests, a short-term small business loan is a small amount, usually up to £1,000-£500,000, and is typically financed within 24 hours. These have shorter repayment terms, usually from 3 months to 2 years. While such loans are usually unsecured, interest rates typically are between 5 – 10%, sometimes even higher.

How to check if your business is eligible for a short-term business loan?

For a business loan application, you need to be registered for VAT and meet a minimum monthly turnover. Moreover, some lenders only provide loans to companies that meet their specific criteria. Hence, it is always good to check the financial providers’ terms and conditions.

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

Traditional banks and high street lenders usually take the credit score into account. If you have bad credit, your application may be rejected. However, poor credit history is not a problem for some alternative UK finance providers for a short-term business loan.

There are three major ways your business can qualify: 

• Turnover Loan in cases where you had past issues but now have a strong credit score with a healthy turnover.
• Asset finance where you are low on cash, but can provide vehicles, equipment, or commercial property as security.
• Invoice Finance where the lender takes out an “advance” of the invoice amount, allowing companies to release cash that is stuck in outstanding invoices.

What are the advantages and disadvantages of short-term business loans?

The advantage of a short-term small business loan is that it is a quick, cash booster in case of emergencies. Plus, since it is short-term, you can pay it off quickly. On the other hand, the speed and convenience of this loan are the reasons for higher interest rates levied on short-term loans. Some business-owners also feel that smaller loan amounts are a disadvantage. In closing always weigh the pros and cons and also seek some professional advice before taking on any form of debt.

Hopefully, you are now much more aware of short-term business loans. Make sure to do your research before applying for one.