A short term business loan can be typically simple and straight forward to arrange and because it is repaid more quickly than a traditional, longer term loan, may be especially attractive to small and medium sized companies.
This brief guide to short term business loans explains the appeal of this type of borrowing and the steps typically involved in arranging such business finance.
In a business environment in which some loans – such as mortgages, for example – may extend over tens of years where, at the other end of the scale, some borrowing may be conducted over no more than a matter of days, short term loans is clearly a relative description.
It might be generally agreed, however, that a helpful definition of a short term business loan is one with repayment terms lasting between three and 12 months.
The attraction to many small and medium sized businesses of this relatively speedy repayment is that total interest charges are repaid as soon as any loan is repaid. Generally, the quicker a loan is repaid, the lower the cost of that credit.
A further attraction is that short term business loans are typically unsecured.
That means the borrower avoids the need to put forward company – or personal – assets as collateral against non-payment of the loan instalments.
If your company has ever approached a high street bank for what it believed to be a simple business loan, you are likely to have been pressed to supply a detailed business plan and cashflow projections in support of your application – especially for larger loans, for which you may also need to offer collateral as security.
Applications for short term business loans, on the other hand, require no appointment with your bank manager and, in many cases, no reams of supporting documentation.
Instead, lenders increasingly rely upon the support of digital technology in reaching online lending decisions, so that borrowers receive quick decisions. As the credit reference agency Equifax has pointed out, however, quick decisions are not made at the sacrifice of rigorous affordability checks – as required by the Financial Conduct Authority (FCA). Through that combination of fast but rigorous lending decisions short term lenders have become some of the leaders in the risk assessment of lending, says Equifax.
Thanks to the use of digital technology in an online application process, short term business loans may be made available very quickly.
Some lenders – including ourselves here at Cubefunder, for instance – are able to provide a more or less immediate decision in principle in response to your initial enquiry.
It is during the following formal online application that the lender conducts what Equifax has described as rigorous affordability checks, but if the application is approved, the requested funds may be transferred electronically to your company bank account within just 48 hours by some online lenders.
Just as faster repayment helps to keep down the cost of borrowing, so too does the amount of the loan borrowed.
For that reason, many small and medium sized enterprises seem to favour short term business loans of around £50,000 or less – although many lenders offer sums of anything between £5,000 and £100,000.