Short-term business loans are most useful to SMEs facing immediate financial needs. Regardless of the industry, businesses that need cash for unexpected opportunities or expenses can benefit. Because short-term business loans are so flexible, they can be particularly useful for seasonal models or startups, as well as service and growth-based businesses.

If you are an entrepreneur trying to find a better understanding of what short-term business loans are and if they are more beneficial to you, read on, and we’ll expand on the subject and sectors to hopefully provide the answers you’re looking for in more detail.

Seasonal Businesses

Seasonal businesses can fall into a number of sectors, including retail, where certain times of the year bring in more sales, for Christmas and easter, for example, tourism that typically thrives in the summer, or agriculture, where certain crops are grown at certain times of the year.

As a result of their sales methods, seasonal businesses tend to experience fluctuations of cash flow throughout the year. Short-term loans then provide the ideal solution, whereby these sales models can manage their cash flow during the off-seasons and cover up any operational costs while their cash is short. It also means they can be prepared to thrive during the peak times, and push for as much growth as possible.

Startups and Small Businesses

• Capital: Entrepreneurs and small business owners will often find themselves in need of funding just to get their new venture off the ground. Due to the flexibility of short-term business loans, this could involve anything from buying initial inventory supplies to funding marketing efforts.
• Initial operational costs: We find when speaking to startup owners that initial expenses can be steeper than they thought, and that the demand requires financial attention that was unexpected. Short-term loans shine again here as they offer the right solution, providing the capital to address expenses, however not leaving the company under a heavy, drawn out financial burden.
• Funds without a credit history: If a business owner is looking for a small, short-term facility, these loan types may still be accessible through use of the owner’s personal credit history or collateral, and because they are typically less of a burden than other loan types, can still offer an ideal solution for newer businesses seeking that quick financial support.

E-commerce and Online Businesses

We understand that online business models require frequent inventory restocks, and it’s not like a physical store where only so many customers can walk in across a set period of time, but literally any number can enter the store and purchase at the same time. If a product is extremely popular and sells-out overnight, it can be a shock, and in a case where funds are needed to continue operations, short-term business loans can be ideal to re-purchase low stock quickly, ensuring sales can be maintained and cash flow remains unaffected by purchases.

In the same vein as seasonal businesses, online shops that are more niche or relevant when, for example, a new subscription to a magazine or online game drops, and between production time and release, may need funds to manage and sustain their cash flow before they launch their new product. Short-term business loans can offer this comfort.

Service-Based Businesses

There are certain business models we are contacted by, such as consulting firms and contractors, who face similar problems, in that their clients’ payments will be delayed due to them being tied to the completion of a project, or a client makes payments at the end of the month and work is finished half way through. If a consulting firm is large enough, this can lead to significant gaps in cash flow, even if on paper they are clearly in profit.

Short-term loans can also provide a solution to potholes in finances, particularly when service oriented businesses like consulting firms need to purchase equipment or secure emergency office space. Because most lenders will offer short-term loans with quicker approval times, or in the case of us at Nucleus, even offering the payouts the same day, they can prove to be an ideal go to solution.

Growth Oriented Businesses

Any business, from any sector or industry can be growth oriented, it just means you are ready for, and aiming to expand, and will likely be on the lookout for sudden opportunities to achieve this. We are often approached by growing SMEs who are pushing into new markets or have an opportunity to secure a new commercial property, and are looking for a short-term facility to secure the capital needed when bridging the gap.

To effectively help force growth, many business owners will also push for marketing campaigns to help drive their business in the right direction, however large scale campaigns don’t come without their costs. This is another place where a short-term loan can be secured to fund advertising, whether they be in the digital form or through promotional events, and with the profits the loan can continue to be comfortably paid off.

Loan offers at Nucleus are restricted in the legal and care homes sector; however, more generally speaking, short-term loans will be available from most lenders to businesses across all industries, which is what makes them so flexible and useful. If you are a business owner that is considering a loan type, we advise that you first speak to your financial advisor or accountant, and then assess your business’s needs. By taking these two steps first, you will be in better stead to make the right decision for supporting your enterprise’s financial health.

At Nucleus, because we use open accounting and open banking software to process our applications, prospective borrowers can be approved in minutes for a short-term loan if they meet the criteria and can even receive their funding within the same day.

More broadly speaking, approval times will differ between lenders, though still being typically shorter than their long-term counterparts. If you are a business owner or SME looking to access a loan and would like to know more about approval times and the factors that affect them, we’ll go through some of the key factors below.

Factors Affecting Loan Approval Speed

If you are familiar with loan applications or have researched the topic before in preparation for an application, you will likely be aware that, regardless of the loan type, be it short-term or long-term, there are some standard requirements that you will need to meet. We’ll cover them briefly below before looking more closely at what you can expect from different lenders in regards to time frames.

• Type of Lender: Between traditional banks, which are known for having slower approval ratings but better interest rates, online lenders like us at Nucleus, offering speed and convenience, and other lender types like Peer-2-Peer (P2P) and credit unions, you find greatly varied approval speeds and criteria. We advise you speak to your financial adviser and do your due diligence to find out which lender will be most beneficial to your business model.
• Application Prep: We always advise business owners to ensure their application is thorough and complete, with all financial and personal documents being accurate and in order, ready to submit to your chosen lender. Missing documents or incorrect details will cause delays regardless of the lender you choose, so again it is worth doing your due diligence so you are aware of everything necessary ahead of time.
• Creditworthiness: Your creditworthiness will also be a significant factor in your application, as lenders will want your credit score and financial history to understand how well you can effectively manage your business’s finances. For most traditional lenders, credit history will be the biggest factor in determining your application, however, at Nucleus, we like to take each prospective borrower on a case by case basis, and get to know your unique story, even if your credit rating is less than stellar.

Approval Timelines

Outside of our own lending model that works with the aforementioned open accounting and open banking technology, whereby a loan can be applied for and in some cases received within the same day, each lender will have its own approval and disbursement process. It is commonly said that traditional banks take longer than their online counterparts, and things like credit unions don’t trail in too far behind traditional banks, however, because individual lenders are so varied, the best thing you can do is contact trusted lenders and make inquiries based on your business needs.

Tips for Faster Approvals

• Pre-Qualification steps: It is not unusual for lenders to offer ‘pre-qualification’ steps that will significantly speed up your process when applying for a facility, as it gives them early access to criteria like your SMEs financial status and revenue, and normally includes your current credit score. If you pre-qualify with your prospective lender, it is a good sign that your full application will be a success.
• Maintaining a good credit score: Credit score is extremely important as it gives lenders an idea of how you currently and historically manage your finances, and also demonstrates how likely it is that you could repay a loan. Good business scores are typically recognised as being above 80, and personal ones, if requested, above 800, but again, different lenders will have different expectations and criteria. By ensuring you pay bills on time, as well as any current debts, you should be able to raise and maintain excellent credit.
• Choose the right lender: Once again emphasising the importance of due diligence, we advise any business owner seeking a loan to shop around, not just between lender types, but lenders within those categories, as terms and rates will still vary amongst similar lender types.

If you are ever in any doubt with regards to borrowing, speak to your accountant or financial advisor first, to be sure your very first steps will be based on professional advice. While lenders like us at Nucleus can potentially offer you a quick turnaround on your application, other lenders will have their own criteria which needs to be requested and understood before you can get a reliable idea of quickly you can get a short-term business loan approval.

The terms of a short-term loan, such as the length of repayment periods will be dependent on the criteria of your chosen lender, and will typically be determined by factors such as loan amount, your creditworthiness, and in regards to interest rates, the general state of the economy.

As well as repayment terms, borrowers should also consider additional fees, and be aware of any potential repayment penalties that could further increase the cost of their facility. If you are a prospective borrower, keep reading, and we’ll go deeper into the basics surrounding short-term loan repayment terms below. The following will be based on general lender data; however, at the end, we will discuss our specific terms here at Nucleus Commercial Finance.

Short-Term Business Loan Repayment Period

• Common repayment lengths: Short term business loans will usually be offered at between 3 months and 2 years, making it an ideal solution for immediate financial needs. It also means businesses won’t need to commit to the drawn out periods of a long-term loan.
• Factors influencing this period: You will find that various factors can influence a loan’s repayment duration, typically including things like the amount you choose to borrow, individual lender guidelines, and normally, most importantly, your creditworthiness. Higher loan amounts or lower credit scores tend to mean increased interest rates so the lender can manage risks.

Short-Term Loan Repayment Schedules

Monthly, bi-Weekly, or weekly repayments may be options you can arrange with your lender, though bear in mind that most loans will be fixed, and you should also consider what would be best for your business model. We advise that you speak to your accountant or financial advisor before making any decisions.

Interest Rates on Short-Term Loans

• Fixed and variable rates: Short-term loans will come with either a fixed or variable interest rate. A fixed rate means the percentage you pay additional to your loan repayments will stay the same throughout your loan’s duration, however a variable rate may be subject to change depending on market conditions, and as previously mentioned, is typically based on the state of the economy.
• Rate ranges: While interest rates for short term-loans will vary between lenders, you can typically expect anywhere from 10% to 30%, with additional factors such as the borrower’s credit history. If your credit score is regarded as high risk, or poor, you can expect higher interest rates due to the risk factor.
• How rates affect overall repayments: When interest rates are higher, it will impact your repayment amounts and have the knock on effect of influencing how affordable the loan is. This is why it is crucial to understand the interest rate of your desired facility so you can calculate the loan cost, including any interest before deciding to borrow. Again we stress the importance of speaking to your financial advisor before taking on any debt.

Fees and Penalties Associated with Short-Term Loans

• Common fees: Taking out a short-term loan, or any facility for that matter, will typically see charges like origination fees, which is a portion of the borrowed sum, and processing fees, as well as fines once the loan has been received for late payments (assuming there are any). These ‘hidden’ costs will add additional expenses to the loan that you should be aware of before committing to it.
• Typical repayment penalties: Certain lenders will impose penalties on you if you want to settle the facility ahead of schedule. These penalties might end up offsetting any interest savings you’ve made from prior repayments, so it’s crucial that you verify whether they will occur or not with your prospective lender before committing yourself, and if there are any, ask how they’re computed.

Nucleus Loan Terms

• Nucleus Business Loan terms: At Nucleus we offer business loans with terms ranging from 3 months to 6 years, and our interest rates start at 16.5%. For short-term loans we offer from 10k up to 250k, and will take any prospective borrowers on a unique basis to discover what repayment structure and terms are best suited to you. Thanks to our open banking integration, which is necessary to apply, we can give you a decision within minutes, and in many cases have funds in your account on the same day.
• Revenue Based Loan terms: The terms on our revenue based facilities range from 3 to 12 months, starting at 3k, with factor rates ranging between 1.15 to 1.35. A minimum of 4 months trading will be necessary, and again we will take prospective borrowers on a case by case basis when coming to an agreement.

By talking to your accountant or financial advisor, and carefully considering the factors that lenders offer with their facilities, you can choose a short-term loan that aligns with your business’s cash flow schedule and unique aims. You should aim to secure a loan that will help financially support your business’s goals without creating additional unwanted financial strain, and always do your due diligence before you commit yourself so you can fully comprehend the repayment terms before making a commitment.

Businesses at any stage of their development may find benefits from the quickly accessible funds that short-term business loans provide, and they can often be crucial for managing urgent financial requirements. Both startups and established businesses tend to have different needs, so understanding the suitability and requirements for securing this loan type will be appropriate for business owners who are currently considering funding.

At Nucleus we are approached often by entrepreneurs and established SMEs who are looking to secure a loan, however are unsure of many of the important details regarding suitability, and while our own business loans and revenue based loans require 12 months and 4 months of trading respectively, we still hear out peoples’ needs. If you are one of them, keep reading and we’ll explore the subject in more detail, hopefully providing some basics for you to do further due diligence with.

Benefits of a Short-Term Loan for Startups

The benefits that a short-term loan can bring to startups will be considerably different to an established SME, this is because of how different their requirements are. There will also be a difference in their ability to get a loan because of their lack of credit history. For most lenders, the new business owner’s own credit history will likely be looked at, or if possible, proof that a previous business was a success and maintained a great financial record.

With regards to borrowing, and in particular for us at Nucleus, directors will be required to offer their own collateral to secure a loan against in the case that a credit history cannot be offered. With these things in mind, let’s look at some of the most common benefits that we find startups gaining from when they do secure a short-term facility.

• Covering initial operating costs: Startups can benefit greatly from covering their operational costs with a short-term loan, and will typically include expenses like buying inventory and renting office space, or to new marketing activities. Short-term loans can offer you the needed funds to handle your expenses and support the business’s early stages while you settle amongst the competition.
• Quick funding for rapid growth: Obtaining the funds for rapid growth will always be crucial for startups as it enables them to seize new growth opportunities as they appear, and due to the speedy approval and disbursement rates that short-term loans tend to come with, it can make them particularly useful in markets where timing plays a significant role.
• Accessing capital: Access to capital can be particularly essential for startups who are lacking a credit history, though as noted, there is a very high chance that lenders will request alternate proof of reliability. That said, short-term loans can offer a great way to help startups get off the ground if their application is successful, as they are completely flexible and can be used for almost any financial need.

Benefits of a Short-Term Loan for Established Businesses

Because established businesses will already have a credit history, and if it is a positive one, with above 700 being considered low risk, they will have access to quickly obtainable funds that can be used for an array of reasons. Below are some of the major ones that we are approached for at Nucleus:

• Managing cash flow gaps: Ensuring a steady cash flow will always be crucial for any business, established or not. Companies facing situations where there are periods of expenses surpassing income, or delays in client payments for example, may find themselves utilising a short-term loan in efforts to bridge these financial gaps and ensure smooth business operations continue.
• Financing unexpected expenses: We find companies dealing with unexpected expenses tend to involve things like equipment breakdowns, urgent stock purchases or unforeseen costs that would otherwise disrupt business activities. This is why business owners come to us for a short-term solution, enabling them to handle these situations without draining their reserves.
• Investing in growth opportunities: Having the funds on hand to grasp growth opportunities as and when they come should be seen as essential for established businesses that are in their growth stage and actively looking to expand. By leveraging short term loans, business owners can finance their ventures or invest in marketing initiatives without the worry of their operations or services suffering.

Suitability Factors for Short-Term Business Loans

Not every business will find themselves able to access a short-term business loan, although you will find alternative lenders like us at Nucleus much more willing to take business owners on a case by case basis to get a complete picture of their financial situation, both in the business and personally, in efforts to find a solution that can work for all parties. With that in mind, some of the following factors will be the primary drivers in deciding whether you can access the funds you need.

• Business age and operating history: The age and history of a business has historically played a role in determining whether a lender will make any kind of facility available them. Because of their ability to provide a financial history, established SMEs will be able to access friendlier terms and interest rates than their startup counterparts. This is simply because startups are riskier for lenders, though with that said, if a startup owner can offer suitable collateral or demonstrate an excellent personal credit history, alternative lenders will tend to be more lenient.
• Revenue stability and cash flow: Lenders of all kinds will gauge a business’s financial management skills by assessing their revenue stability and cash flow, and this is simply to evaluate whether those metrics make them better equipped to handle the regular repayments that come with a short-term loan. For startups this may of course be a struggle, and we suggest discussing options with the lender you are seeking a facility with to see if you can meet their criteria.
• Credit score and financial history: Credit is an important factor for determining if a business will be capable, or reliable enough to repay a loan agreement. A ‘low risk’ credit score (above 80 for businesses or 800 for personal) will demonstrate to lenders that you are a trustworthy partner. It can also lead to better loan terms and higher approval chances, which while great for established businesses, again doesn’t help much for startups. This is where the personal credit history and collateral of the startup’s owner can help if they are serious about getting their brand off the ground.

Specific Use Cases for Short-Term Business Loans

While at Nucleus we require businesses to have been operating for a minimum of 12 months for our business loans, and 4 months for our revenue based loans, we are still familiar with what other lenders will grant short-term facilities to prospective borrowers for, and these are some we are approached for by both entrepreneurs and established SMEs.

• Startups: For businesses just starting out, short-term loans can be ideal for funding your initial startup inventory, as well as any marketing campaigns you intend to launch to get established. Facilities can also cover early operational costs to avoid you needing to sink any early cash flow into operations.
• Established: For established SMEs, the reasons for a loan tends to be much broader, and could be anything from supporting expansion, to equipment repairs, to seasonal stock adjustments or any other financial need. They are quick to access, convenient, and tend to come with less of a burden compared to long-term loans that bear an ongoing cash flow stress load.

Nucleus Commercial Finance Short-Term Loans

• Business Loans: Our short-term loans at Nucleus range from 10k to 250k, with flexible repayment terms that can be discussed on a case by case basis.
• Revenue Based Loans: The terms of our revenue based loans range from 3 to 12 months, with finance starting at 3k.

If you are currently considering a loan, we suggest that you first speak to your accountant or financial advisor to get a better understanding of whether your business is in a good place to meet even the basic criteria of a loan application. Short-term loans can be ideal for both startups and established businesses that are looking for support to either get off the ground or to continue growth, and if you are seeking financial aid, do your due diligence, and start contacting prospective lenders to see what they can do for you.