Ben Larkins and Jon Maloney talk us through short term business loans.
What is a short-term business loan and how do they work?
It’s quite simply a loan taken by a business over a short period of time – anything between usually three months and 18 months.
It works very much the same as a lot of our loans in terms of the information required. We need a completed application form, which you could do on the website or via one of our sales team over the phone.
We also need six months of business bank statements and a full set of year-end accounts. We have the ability to get auto approvals from some of our funders, where a completed application form can receive instant approval via their very clever AI system.
What are the eligibility criteria for short term business finance?
The business needs to have been trading for over 12 months and turn over more than £72,000 a year – that really is the standard qualifying criteria.
Once we get the bank statements and credit score, we will delve a little bit deeper. That’s the eligibility criteria for the funders that we deal with, but there are many other funders out there that might want something different. Every funder and every broker will vary slightly.
Why would a business need a short term loan?
We’re in October 2023 at the moment, approaching the Christmas period, at which time retail businesses particularly need to ramp up their stock levels. So a short term loan is a very popular product for a retail business to bridge that Christmas period.
They can increase stock levels and then when all the stock is sold and trade has increased, they’ll look to pay the loan off in January or February.
Another typical scenario is where a professional needs it for their various insurances and licences. There are various different things that businesses would need them for. But by virtue of the fact they are short-term, you’re not looking to take one of these out if you’ve got a problem in two or three years – it’s very much here and now.
How long is a short term business loan?
On average, a short term business loan that we offer is around six months, but they can be anywhere from three to nine months. If you’re looking at 12 to 18 months you’re probably looking at a different use for the money.
What are the options for short-term financing? What are the most common short-term loans?
The most common one is six to twelve months. The options are three months, six months, 12 months and 18 months.
How much can I borrow with a short term business loan?
Generally, from £10,000 up to £500,000 – but I would say that on average we top out at about £250,000 on a short-term business loan.
On anything above that, the bank is starting to ask a lot of questions and it typically takes longer to get approved. You’re probably looking between two and six days.
Some applicants will turn over perhaps £250,000 and apply to borrow £500,000 – but nobody’s going to lend you double your turnover. How are you going to pay that back in 12 months? Your evidenced cash flow doesn’t demonstrate that you can afford to pay it back.
We do try to manage people’s expectations. We wouldn’t promise the earth and deliver nothing – we’d prefer to underpromise and overdeliver. We like to bring a little bit of realism into it.
Which banks give short term loans? Are there many?
We have a panel of 52 lenders and I would probably say 20 of them offer a short-term loan facility. I won’t name them all in case I forget one!
But if you’re talking about high street banks, probably none. The high street wouldn’t wouldn’t touch that, simply because they take so long.
If we use the retail example, for Christmas stock – if you applied for a loan now you probably wouldn’t know until the back end of November. But you need to buy that stock now, so it’s too late.
What are the advantages and disadvantages of short term business loans?
One advantage is the speed at which they can be turned around. There’s no security, so you haven’t got to put a house up or any business assets. The disadvantages are obviously that because it is over a short term, repayments will be higher – so you’ve got to be confident that your cash flow can afford it. The interest rate is also slightly higher.
Some people compare a short-term loan with their mortgage rate – but they’re two completely different products. The bank is lending you money that is secured on a house, whereas our lenders are lending totally unsecured.
How long do I have to wait for an application to go through?
Typically, between one and three days. Other brokers and banks are different, but with us you can expect it within three days.
How do I apply for a short term business loan? Is it easier to get a short term loan?
You go on to our short-term business loan page and have a read about it. Make sure that this is the product for you and then apply on the website. One of our account managers will give you a call and talk you through the process.
They’ll get some brief information about you and the business and make sure whether this is the right product for you. If not, they’ll perhaps steer you to another one.
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