How Does a Short-Term Business Loan Work?

When a business is in need of funds, there are a number of different avenues they can explore. From business credit cards to traditional bank loans – it can be difficult to know which is the right way to go for your business.

Whilst there are many loan products available to assist in keeping your business afloat, a short-term business loan is a great way to meet your more general financing needs. There are many different types of loan available, it can be daunting to know which one to choose. Today we’re looking at short-term loans, and how they work. Every type of loan comes with its own advantages and drawbacks, but by looking at the facts about each one, you will be better equipped to make an informed decision about which loan is the right one for your business.

What is a Short-Term Business Loan?

This type of business capital loan can provide a company with funds incredibly quickly. Like most loans that come from a bank, the company receives a lump sum of money upfront which is then repaid to the lender over a set period of time. But, as the name suggests, the loan is paid back over a shorter timer period than other types of loans.

Short-term loans are ideal for small businesses and SMEs in need of funds, who don’t want to be paying off debts for many years after taking the loan. Most short-term business loan agreements last a few months or up to a year. Once the loan has been approved, funds can be directly transferred to a business’ bank account in as little as 24 hours.

When to Take out a Short-Term Business Loan

Short-term business loans are designed for businesses that need a quick injection of funds to deal with the unexpected. Managing a demanding business cash flow can be complicated. Mistakes can be made, or upcoming expenses can be overlooked; spending predictions can be wrong, which leaves gaps in finances that desperately need filling. Whilst funds can be shifted around to remedy these situations, sometimes a business runs the risk of running into a zero balance before they have the chance to recover. This is where a short-term loan can be incredibly useful to businesses.

Whether it’s for a project whose budget was underestimated, buying stock or equipment at a bargain price, an unexpectedly high bill or hiring a bigger workforce to deliver on a project, just about every business needs extra capital from time to time. But not every business wants to make the commitment to a long-term business loan. A short-term business loan is a great way to fund aspects of business expansion, sort out other debts, take advantage of opportunities and essentially meet any temporary financing needs that can then be repaid in a matter of months.

Unsecured Borrowing

This popular type of borrowing is typically offered on an unsecured basis. This means that the loan is not secured against the assets of the business owner or the business itself. Essentially, this prevents the lender from seizing any assets, if the business does not repay the loan. This decreases the risk of borrowing to the business but increases the risk to the lender, and this can result in higher interest rates on the loan.

Most banks and other financial institutions will often require some kind of collateral for a loan, making them riskier investments, particularly for SMEs that cannot afford to lose their assets. That’s why short-term business loans can be incredibly appealing to small businesses, allowing them to borrow funds without the worry of losing their business assets should they be unable to make repayments.

Advantages of a Short-Term Business Loan

Short-term business loans have a number of advantages over other types of loans. Short-term loans are working capital used to help a business over a short period of time, so the lending requirements are more relaxed than other loans, making it easier for a business to get approved for one. Additionally, if you needed to take out a long-term loan at some point in the future, having a track record of successfully repaying a short-term loan may increase your chances of qualifying for this type of loan.

If your short-term business loan is offered on an unsecured basis, the speed at which the money can be transferred over to you is incredibly fast, which can be vital to a business in need of funds. Without a short-term loan, a business might have to pass on a great deal if they don’t have the funds needed at that time, so a short-term business loan can open your business up to new growth opportunities.

The limited, short-term repayments are also an attractive prospect to businesses that do not want to be stuck paying back loans for many years. Whilst the interest rate on short-term business loans can be higher, you will undoubtedly end up paying less interest overall when you pay back the loan over a short-term instalment, as opposed to owing back interest over a much longer period of time, such as a number of years.

Short-Term Business Loans with Ping Finance

At Ping Finance, you could be approved for a short-term business loan after completing one simple application form with us. Simply submit your business details to multiple lenders in one easy click, and then we do the rest. Our multi-purpose short-term business loans are available when you need them, complete with flexible loan amounts and transparent repayment terms.

You will be assigned one of our expert debt advisors who will keep you in the loop and send additional documentation direct to liaise with your lender to help get the funds into your business’ account as quickly as possible.

With our extensive financial knowledge, we can match your business to the right lenders within minutes. Let us know your financial needs and we will present you with a suitable range of options to choose from. Contact us today and discover how we can help you secure a short-term business loan.

Back to Blog