Home » Articles » All you need to know about short-term business loans

All you need to know about short-term business loans

Running a business can have its ups and downs. At times, a financial helping hand can be beneficial to keep the business going. This may be help to buy a business property, fund investments, increase growth, hire new staff or help to keep the business running whilst waiting on completion of projects.

One of the most common ways businesses can bridge the gap between their spending and revenue is by obtaining a loan. Business loans can be a great way to keep the cash flow balanced and ensure there is enough money coming through for the continuity of the business.

Finding the right loan for your business is no easy feat. In fact, it’s not just banks and interest rates that you need to compare, but online lenders, short-term lenders and asset lenders can all add to the confusion.

That’s why we’ve put together a guide to help businesses achieve their short-term lending goals.

How much cover do you need?

When you start to look for a loan, it’s important to work out how much you will need. In order to establish this, you’ll need to know what your loan will be for. This will need to be backed up with evidence so that lenders can assess the real need for lending and the risk associated.

How long will the policy term be?

When looking at getting a loan, the quicker you can pay it off, the better the rates. Even with a larger amount of lending, if you can demonstrate as a business to pay off the loan quicker, your interest rates will likely be lower, and you will pay less over time.

Despite this, having a longer-term loan can also reduce the rates. Longer-term commitments can signify to the lender that you are less of a risk. It very much depends on the route you go down, but it can be integral to get comparisons, so you know what’s best for you.

Fixed or variable interest rates?

When it comes to repayments of any loan, the interest rate may be what tips you over the edge. Interest rates are typically what you owe on top of the loan amount. A fixed interest rate, therefore, stays the same over the course of the policy term. A variable amount, differently, will change monthly or annual based on your policy type.

A fixed interest rate is normally better for budgeting, because you then know how much you will owe each month until the loan is completely paid off.

A variable interest rate, comparably, depends on market rates. Whilst it may be riskier, it can lead to cheaper payments overall.

Who can apply for a business loan?

Any company can apply for a business loan no matter what size. However, the rates that you get offered may be dependent on your size and projected forecasts. Normally, in order to get a loan, you will need to be fairly transparent about your costs and balance sheets as well as projected forecasts of profits and revenue.

What can a small business loan be used for?

It’s up to you as a business what you use your loan for. But typically, loans for smaller businesses are used for development, expansion, acquiring business property, reducing debts, increasing cash flow, research and product testing. Depending on what the purpose of the loan is for, it can be integral to whether a short-term business loan or a longer-term loan may be beneficial.

Short-term business loans

For smaller businesses, it’s quite common to need a short-term loan to inject cash into the business. For this reason, shorter-term loans that last no longer than 6 months to a year can help their immediate need to correct cash flow. Repayments are limited, and any contracts any payments coming in can help to pay off the loan quicker, without having to borrow long term and affect accounts.

What’s more, shorter-term loans can actually improve the credit rating of a company. So, businesses that can demonstrate a reasonable credit history, a solid financial history and a transparent profit-loss/cash-flow system can get competitive rates and a cash injection to help them continue to grow.

Growing your business

To grow a business takes a lot of hard work and perseverance. Sometimes, an extra cash injection can help give a business the boost it needs. Investing in your business can be integral to moving forward. Small business loans are available to those that need it, at affordable prices. Do your research, find the right price and make sure that you can pay back any loans you take out to keep your business running profitably.