Short-term business loans: how they work, what they cost and when to use one

What a short-term business loan is

A short-term business loan is a lump sum that a business borrows and repays in full within a short period, usually somewhere between 3 and 24 months. Most lenders and comparison sites draw the line at 12 to 18 months, but loans of up to two years are commonly sold under the same name. Anything longer is normally called a business term loan or simply a business loan.

Three features set short-term loans apart from longer borrowing:

• Speed. Online lenders decide most applications within a day or two, often using open banking to read your business bank account instead of waiting for accounts. Banks are slower but still quicker than for larger, secured loans.
• Price. The annual rate is usually higher than for a longer loan, and it is often quoted as a monthly rate, a flat rate or a factor rate rather than an APR. The total cost in pounds can still be modest, because the money is borrowed for only a few months.
• Repayment pressure. Repaying the whole sum in a few months means large instalments. A £30,000 loan over six months costs about £5,200 to £5,600 a month, against about £1,000 a month over three years.

Ranges are indicative, drawn from published lender terms and the other guides on this site. Lenders set their own limits and terms.

Not the same as a bridging loan or a payday loan

A commercial bridging loan is also short-term, but it is secured on property, usually repaid in one sum from a sale or refinance, and priced quite differently. Personal payday loans and other high-cost short-term credit for individuals are a separate, regulated market with a cap on charges. This guide covers unsecured and lightly secured short-term loans to UK limited companies for business purposes.

The main types of short-term business finance

Lenders sell several quite different products under the short-term label. The amount, the cost and, above all, the way you repay vary a great deal, so it helps to know which one you are being offered.

Our guide to working capital finance covers the facilities you draw and repay, such as overdrafts, revolving credit and invoice finance, in more depth. This guide concentrates on the loans: a fixed sum, borrowed once, repaid within two years.

Daily and weekly repayments

Some online lenders and most merchant cash advance providers collect payments daily or weekly, by direct debit or by taking a share of card takings. Frequent collections suit businesses with steady daily income, such as cafés, shops and salons. They also make the loan dearer than it looks, because you start repaying the money almost as soon as it arrives. A factor rate of 1.12 repaid weekly over six months is equivalent to an APR of about 56%, against about 48% if repaid monthly. Ask how often payments are taken before you compare prices.

When a short-term loan makes sense, and when it does not

The simplest test is the payback test: will the thing you are borrowing for bring in, or save, enough cash to repay the loan and its cost within the term? If it will, a short-term loan can be a sensible, contained way to fund it. If the money is needed for longer, the loan will have to be refinanced, often at a worse price.

A short-term loan is at its best for a specific, one-off job that you can describe in a sentence, with a known amount and a date by which the money comes back. The less certain that date, the more it pays to look at a flexible facility instead.

What short-term business loans cost in October 2026

Short-term business loans are priced individually, using your trading record, bank statements, credit file, the amount and the term. The ranges below are indicative for UK limited companies in October 2026, with Bank Rate at 3.75%. They are drawn from published lender pricing and the other guides on this site, not quotes.

What two well-known online lenders publish

As examples of published terms, not recommendations:

• iwoca’s Flexi-Loan lends from £1,000 to £1 million, says its rates start at 1.5% per 30 days, and shows a representative APR of 49%. Interest is charged only on the days you have the money, there is no fee for repaying early, and borrowing for more than 12 months may add a fee, typically 5% for 13 to 24 months.
• Funding Circle’s short-term loans run for 6 or 12 months, from £10,000 to £750,000, with no arrangement fee when you apply directly and no fee for overpaying or settling early. It gives instant decisions up to £250,000. Shareholders may need to sign a personal guarantee, capped at twice the loan for loans under 24 months, so £100,000 on a £50,000 loan.

What pushes your price up or down

• Trading history and turnover. Two or more years of filed accounts and steady turnover open up bank pricing. Under a year usually means online lenders only, at higher rates and smaller limits.
• Your bank statements. Lenders look for regular income, a healthy average balance, no unpaid direct debits and no signs of other short-term lenders already taking payments.
• Credit history. Company and director credit files both count. Our guide to bad credit business loans shows how CCJs and defaults change the options and the price.
• The term. A shorter term usually means a lower total cost in pounds but a higher annual rate, because the fees are spread over fewer months.

The Bank of England’s average rate on new bank loans to smaller businesses is far below these ranges, because it is dominated by larger, longer and often secured loans. Our guide to business loan interest rates sets out typical rates for every kind of business finance.

Reading the quote: monthly, flat and factor rates in pounds

Short-term lenders quote prices in at least four different ways, and none of them can be compared with another until you turn each one into the total you repay in pounds and an annual rate. A low-looking number can be the most expensive loan on the table.

The rule is simple: for every offer, write down the cash you actually receive, each payment and how often it is taken, and the total you repay. The business loan calculator turns an annual rate into a monthly payment, and our guide to comparing business loans shows how to put offers side by side.

Worked examples: a contract, a tax bill and a supplier discount

The total cost is only half of the decision. The other half is whether the monthly repayments fit the cash you will actually have. These three examples are illustrations, with the assumptions stated, not quotes.

What lenders look for, and how much you can borrow

Criteria vary from lender to lender, and online lenders publish less than banks. These are the points most UK short-term lenders check for a limited company:

• Trading history. Many online lenders lend from about six months of trading, some from three. Banks and the larger online lenders usually want one to two years, and often filed accounts.
• Turnover. Minimums are commonly about £50,000 to £100,000 a year, lower for small loans. Merchant cash advance providers look at monthly card takings, often £5,000 to £10,000 a month or more.
• Bank statements. Usually three to six months, often read through open banking. Lenders look at income, the lowest balances, returned payments and other lenders’ repayments.
• Credit files. The company’s and usually each director’s. Recent CCJs, defaults or missed payments narrow the choice and raise the price.
• Existing borrowing. Lenders add up every repayment already going out. Several short-term loans or cash advances running at once is one of the most common reasons for a decline.
• A personal guarantee. Almost universal on unsecured short-term loans to companies. See the next section.

How much can you borrow?

Most short-term lenders cap an unsecured loan at a share of annual turnover, often around 10% to 25% for an established business and less for a young or volatile one. As an example of published criteria, iwoca says it typically lends up to about 20% of turnover and caps businesses trading for under a year at £10,000. The repayments then have to fit: lenders look at whether the monthly or daily payment leaves enough headroom in your quietest months, not your average ones.

On a turnover of £600,000, a cap of 15% to 20% suggests a limit of roughly £90,000 to £120,000. But over six months, £100,000 needs repayments of more than £17,000 a month, and few businesses of that size could carry that. In practice, the repayment test usually bites before the turnover cap on short terms. Our guide to how much you can borrow works through both tests.

Personal guarantees and security

Most short-term business loans have no specific security, which is why they can be arranged quickly. Instead, lenders nearly always ask the directors, or the main shareholders, to sign a personal guarantee: a promise to repay the loan personally if the company does not. Some lenders also take a debenture, a charge over the company’s assets, on larger loans.

A personal guarantee on a short-term loan deserves as much care as one on a long loan, for three reasons:

• It can be larger than the loan. Many guarantees cover interest, default charges and recovery costs. As noted above, Funding Circle caps its guarantees on short-term loans at twice the amount borrowed.
• It is often joint and several. With two or more directors, the lender can usually pursue any one of them for the whole amount.
• It is signed quickly. Fast online applications can mean signing a guarantee within minutes. Read it in full first, and ask whether it can be capped.

Under the Growth Guarantee Scheme, lenders cannot take a main home as security, but they can still ask for a guarantee. Our guide to the Growth Guarantee Scheme explains when a short-term facility may be backed by it.

How to apply, and how fast the money arrives

1. Write down the job, the amount and the payback date. If you cannot say when the money comes back, a fixed short-term loan is probably the wrong product.
2. Build a simple monthly cash forecast for the term, with the loan repayments in it, and test it with sales 20% lower and customers paying a month late.
3. Gather the documents: three to six months of business bank statements, your latest filed accounts or management accounts, a list of existing debts and repayments, and the directors’ details. Larger loans may need a VAT return and an aged debtors list.
4. Check each lender’s search before you apply. Many online lenders give a quote on a soft search, which other lenders do not see. A full application usually involves a hard search on the company and often the directors. Several hard searches in a short period can count against you.
5. Compare offers in pounds: cash received, every payment and how often it is taken, the total repaid, every fee, any early repayment terms and the personal guarantee.
6. Read the agreement and the guarantee, then sign. Companies do not get the 14-day cooling-off period that personal borrowers have.

Online lenders such as iwoca and Funding Circle say most decisions take minutes to a day, with money paid within hours or a couple of days of signing. Banks commonly take one to three weeks. Speed has a price, though. If you can see the need coming a month away, you will usually get a better deal by applying before it becomes urgent.

Our step-by-step guide to getting a business loan covers what lenders check and what to do if you are declined.

Risks and warning signs

Short-term loans are useful precisely because they are quick and contained. The risks come when they stop being either.

• Refinancing loops. Some lenders offer to top up or renew a loan before it is repaid. Each renewal can bring a new fee and a new guarantee, and a short-term need quietly becomes long-term debt at short-term prices.
• Stacking. Taking a second or third loan or cash advance to keep up with the first is a sign of a deeper cash problem. Each one takes its cut from the same takings.
• Frequent collections. Daily or weekly payments can drain an account faster than expected in a slow week, and missed collections bring charges.
• No saving for repaying early. With a factor rate or flat rate, the total is often fixed, so repaying early may save nothing. Ask.
• Upfront fees. A genuine lender or broker does not ask you to pay a fee before a loan is approved and paid out. Requests for an upfront fee are a common sign of loan fee fraud.

What protection applies to a company?

Loans to limited companies are generally not regulated by the Financial Conduct Authority. Loans of up to £25,000 to sole traders and small partnerships usually are, and larger loans to them can be exempt if they are mainly for the business, under article 60C of the Regulated Activities Order. For a company, the agreement and the guarantee are your main protection. Micro-enterprises and many small businesses can take a complaint to the Financial Ombudsman Service, and many lenders follow the Lending Standards Board’s Standards of Lending Practice for business customers. Check any lender or broker on the FCA Register.

Alternatives worth checking first

A short-term loan is rarely the only answer, and often not the cheapest. Before you apply, it is worth ruling these out:

Our guide to working capital finance prices an overdraft, a credit line, invoice finance and a merchant cash advance on the same £50,000 over 90 days, from about £1,420 to £7,500.

Where Business Loan Advice fits

We are not a lender and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you. The service will not cover individuals, sole traders or partnerships.

In the meantime, the business loan calculator and these guides are free to use with no sign-up. If your limited company is planning to borrow, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.

Common questions