Short-term Business Loans
A short-term business loan can be invaluable for businesses that need a cash boost if they are expanding, or if they need a bit of extra help to manage their cashflow.
This type of loan usually has a term of six-months, so will need to be repaid quickly. You can usually choose a fixed rate of interest, so you know repayments will be the same every month, or a variable rate, which could mean your repayments change over time.
Advantages of short-term business loans
The main advantage of opting for a short-term business loan is that you know your business will only have to make repayments for a limited period of time. You will also usually pay less interest overall than if you opted to repay what you owe over a much longer term, such as five years.
Disadvantages of a short-term business loans
Choosing to take out a short-term business loan may mean that you will be able to pay off what you owe quickly, but bear in mind that your repayments will be much higher than if you opted to repay your long over a medium or long-term period. Interest rates can be very high on short-term borrowing, so it’s worth comparing lots of different loans to ensure you find the right deal for your business’s needs.
What else you need to know
Difficult economic conditions in recent years have made it harder for businesses to borrow money. To apply for a business loan, your business may be required to have a minimum monthly turnover, and you may have to show a set number of accounts, usually two or more years.
Remember too that the actual rate of interest you will be charged on a short-term business loan will depend on your business’s individual circumstances, the amount you want to borrow, and over what period you intend to pay off what you owe.
Alternatives to a short-term business loan
If you don’t think your business will be able to pay off any borrowing over a year or less, then you might want to consider a medium or long-term business loan which can be repaid more slowly.
Other options include using a business credit card for any immediate expenses. These can also be a useful way to manage staff spending. You could also speak to the provider of your business bank account about arranging a business overdraft which can provide you access to funds as and when you need them. You can usually arrange an overdraft for a 12 month period, at which point it will have to be renewed.
Businesses can also raise funds though cashflow finance, which allows then to borrow against the value of their unpaid invoices, or they can borrow against their assets such as any equipment or property.