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What's a short term business loan?

What are short term business loans?

Short term business loans allow SME owners to borrow money on a more fluid basis, often with flexible repayment terms. If you’re not keen on getting tied into a long term loan agreement that could require repayments for several years, then a short term business loan could be more suitable.

Short term business loans can be great for investing in stock or equipment at short notice. Imagine you run an ice cream shop and the coming summer is forecast to be the hottest on record – a short term business loan could help you buy more ice cream machines so that you can meet the demand and keep growing your business. Once you’ve profited from the summer boom, you could use the funds to repay your loan.

What are the advantages of short term business loans?

  • Pay less interest:
    if you’re only looking to borrow the money for a few months, with a short term business loan you won’t accrue as much interest as if you were taking the money on a long term basis.
  • More business freedom:
    if your business loan is secured against an asset (such as a car or equipment), you’ll be restricted in selling it whilst the loan is active. With a shorter term business loan, that restriction won’t last as long meaning you’ll have more freedom in choosing how you run your business.
  • Speed of approval:
    short term business lenders understand that time is of the essence when it comes to funding. For that reason, they’ll often be quicker to review your application so you can get on with running your business.
  • Flexibility:
    some lenders will allow you to decide how long your loan term will be, without charging early repayment fees. If you don’t need it for the full duration, you may be able to save on interest by repaying early.

How do short term business loans work?

Often offered by alternate lenders, the application processes tend to be streamlined and digitised – meaning you’ll be able to submit everything you need online. It’s likely you won’t have to physically go into a bank branch or speak to a bank manager.

You’ll need to provide some basic information about you and your business, and give a brief description of why you’re looking to take the funds. It’s likely that your chosen lender will perform a credit check on your business to make sure you’re in a good financial position to repay the loan.

Things tend to move quickly with short term business loans. If you’re approved, you could have the funds in your account within a few working days.

Higher interest rates:
While you’ll accrue less interest by borrowing the money for a shorter duration, short term business loans can still have higher interest rates. This can be down to the speed and flexibility of the product, which enables you to react quickly to changes in your business.

Lower amounts:
Because of the short terms, it’s unlikely that you’ll be able to borrow as much as you would through a longer term product.

Personal guarantee:
It’s likely that short term lenders will require a personal guarantee from you to secure your loan, especially if you have a limited trading history.

Eligibility will vary from lender to lender, so it’s hard to say whether you’ll qualify for a short term business loan without knowing about your business. Some lenders have a business loan calculator that will let you see what your loan repayments could look like. As previously noted, you’ll need to give some preliminary information about your business in order to get an answer, but it could be worth checking if you think a loan with shorter terms is best for your business.

In order for a lender to issue you a loan, they need to take into account whether you’ll be able to repay what you’re borrowing. A credit check is one of the main ways to determine this, so it’s likely that they’ll perform on your business.

Whether a lender will run a personal credit check on you will vary, so it’s best to check with whichever you choose to apply to.

As mentioned above, interest rates for short term business loans will usually be higher, as you’re likely to pay more for the speed and flexibility of the product. You’ll need to look at the specifics of the loan you choose, as different lenders will charge different amounts.

To give an example, iwoca’s Flexi-Loan has a representative APR of 49%, which equates to a monthly interest rate of 3.33%. If you borrowed £10,000 at that rate, you’d make 12 monthly repayments of £1,025, or could repay early to save on interest. 

As to be expected, there are alternatives to a short term business loan – it really depends on the reason you’re looking for finance. A longer term business loan is likely to have a lower interest rate, and allow you to borrow more. If you’re looking to fund a long-term growth strategy, then this might be a better option for your business.

For businesses affected by coronavirus that are seeking longer term solutions, the Coronavirus Business Interruption Loan Scheme (CBILS) could be suitable. Accredited lenders are offering finance in the form of loans, business overdrafts, invoice finance or asset finance, for up to £5m. iwoca is an accredited lender for this scheme – submit an application today.

As mentioned above, the need for a personal guarantee will vary from lender to lender, and depend on your business credit and trading history. If you’ve been trading for a long time and have a credit history, you may be able to get a short term business loan with no personal guarantee.

How our short term business loans work


Apply in minutes

Our Flexi-Loan is designed with small businesses in mind, so we'll just need the basics about your business to make a decision.


Use your funds

We'll approve you based on your business performance. Typically, the funds will be in your account in hours, just transfer as much as you need to your bank account.


Repay or top up

We don't charge early repayment fees: we only charge interest for the days you have the money. If you need more funds, applying for a top up is easy.

Apply for a Flexi-Loan

If your business has been impacted by coronavirus try our recovery loan

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Dan is part of the content team at iwoca. He writes articles explaining financial topics, as well as guides on the best support for small businesses during coronavirus.

Article updated on: 7 March 2022

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