How to find the “best” short term business loan

Short term business loans are a popular tool leveraged by businesses looking to bridge gaps between funding, cover emergency expenses, and manage cash flow. With lending now a £488 billion-business in the UK, you may be considering taking out a short term loan yourself.

If you’ve decided you’d like to leverage this tool, the next stage might be considering how to ensure you find the short term business loan that most suits your business needs. We’ve written this article to help you discover just that.

How to find the “best” short term business loan

“Best” is a hard word to grapple with. What might be the best loan for one business could be the worst for another.

Example: Company A has clients who pay their invoices consistently. They are currently dealing with a broken fridge – the fridge is essential to their work and needs replacing immediately. They’ve found a short term loan that provides the funds for free, as long as payment is made within the month. If payment isn’t made within the month, the cost of the loan would increase dramatically.

They recently sent out a batch of invoices that would more than cover the loan amount, but the invoice due dates are not for another 20 days. They’re sure the clients will pay the invoices on time, as they always have. In this instance, the loan they’ve found would be the “best” loan for them.

Example: Let’s take the same deal but a different company. Company B’s fridge has also broken, and they too have sent out a batch of invoices, but their clients don’t pay on time. Historically, they always pay a month late.

In this instance, despite so many of the variables being the same as Company A’s situation, the same loan Company A loved would not be suitable for Company B, as they would end up having to pay the heavily increased surcharge. For Company B, asset finance or an equipment lease might be best.  

All to say, you are the only person who can truly decide what’s best for your business. In general, you should always keep yourself in the driving seat when it comes to business funding. In that vein, here are some questions to ask yourself to ensure you find the most suitable solution for you.

Consider your needs

• Repayment: Strategically consider how you will repay the loan. How secure is your payment method? How likely are you to miss a payment? Structure your loan around your needs. For instance, if you are absolutely positive you will never miss a monthly payment, a revolving credit facility may be suitable.

• Term length: Decide on your preferred loan term period. Too long and you may have to pay more interest than needed, too short and you may be left unable to meet your repayment dates.  

• Amount: How much do you want to borrow? Again, too much and you’ll pay more in interest than required, but too little and you may not be able to reach your goals. When considering the amount, it can help to use a business loan calculator to see what you can afford as far as repayments. Once you’ve calculated repayments, sketch out a brief budget plan to see if the new payments will fit in well.

• Loan types: There are a range of short term business loan types. To name a few, there are bridging loans, business loans, start up loans, business credit cards, merchant cash advance, and plenty more. Have a read of each of the loan types to decide which might suit you best, consider your own needs when making this decision. For example, if you have a lot of cash tied up in invoices, invoice finance might be a short term loan type you might want to consider.

• Loan requirements: What do lenders require? Do you fit into those requirements? Most lenders we work with require applicants to be over 18 years of age, for the business to be based in or work within the UK, and for you to have a trading history spanning longer than 6 months. Take a preliminary look at what lenders are asking for and use this to whittle down your selection.

Compare and contrast

• Lenders: It’s time to choose a lender or a small selection of lenders. A broker like Funding Options by Tide (that’s us!) could help you find a group of lenders to choose from. Consider the type of lender as well as the specific company – are they a traditional financial institution or an online lender? Which do you prefer? If you can find reviews online, have a read through them to help inform your decision.

• Loan options: Once you have a small group of lenders and loan types before you, consider which interest and fee structure you prefer. You’ll likely come across fixed (the interest percentage is decided at the beginning of the loan agreement and remains fixed for the term), variable (the interest can change depending on market variables), and interest-only (this is more common with a loan type like bridging loans used for construction projects, essentially, you only pay interest during the loan period and you then pay the full amount at the end of the loan term once the project is complete).

• Offers: Once you have a few offers in, compare them. As a general rule of thumb, the more interest the lender is charging, the more you’ll pay. Look carefully at any possible fees and fines.

• Negotiate: If you’ve received several offers, consider whether or not you may be able to negotiate for a slightly better rate. This is particularly possible if you pay a large deposit. You could also take your offers back to your current banking provider and see if they provide a special rate for current clients.  

• T&Cs: Look carefully at the terms and conditions. This may feel tedious but it’s an important stage in finding the most suitable lender. If you come across anything that feels confusing, feel free to reach out to the lender directly for clarification.

Preparing for application

• Gather your documents: Not submitting all the correct documents can result in delays to your loan – gather your documents early on in the process so you’re prepared if the lender has any questions for you.  

• Credit score: Generally, the higher your personal or company credit score, the more favourable loans you’ll find. If you have the time, you might consider improving your business credit score. This can be done by paying off any overdue credit, keeping your utilisation below 20%, and submitting your company accounts on time.

Submitting an application

• Check in with yourself: Have you carefully considered the impact short term debt could have on your personal and business finances? Are you 100% happy with the lender you’ve chosen? Take a few moments to check in with yourself to ensure you’re truly happy to go ahead with an application.

• Timing: Be aware that some applications can be approved within minutes of applying whereas others can take substantially longer. If timing is a consideration for you, reach out to your proposed lender and ask them how long they usually take to process applications. 

• Submit your application: It’s time to apply! Feel free to reach out to our team if you need support with this and good luck!

Get expert support when applying for short term business loans

Our team of experts helps businesses of all shapes and sizes find suitable funding. Click the link below and submit your information to find out if you’re eligible to use our service.

Find a short term business loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

Short-term lending can lead to financial difficulty and is not suitable for everyone. Contact us for support if you ever face difficulties making your repayments. Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.