Short term business loans – when to consider using them

when to use short term loan or funding

Like many people, you may have always dreamed of starting your own business. Being your own boss, making your own hours and realising your own vision are all common reasons people decide to start a business in the first place.

A lack of funds can hold you back from taking the plunge, but now more than ever, a variety of options exist to help fund your vision and turn it into a reality.

In our rapidly changing economy, people are coming up with new solutions to tackle old problems. Until recently, people without capital had few options for financing their business: they could ask friends or family for cash, or take out a traditional bank business loan. Now, short-term commercial loans have come into prominence to fill that gap.

A short term loan may well be a good option for you and your business. Short terms loans can be more expensive, and aren’t always a good option for longer term borrowing. However, payday loans may be able to better help you bridge the financial gap until the business is up and running (source: MyCashLine).

Why short term loans?

There are many reasons a short-term loan is a good option for your business. Short term, often specifically payday loans can be great for temporary financial problems, such as cash flow issues or quick injections of money that may be needed in the early stages of a business.

These loans can allow you to buy some stock for example, or may just be that bit of money needed to keep your business flowing seamlessly.

Additionally, short term loans can sometimes be a cheaper option than conventional bank loans. To borrow money temporarily, short term loans are often cheaper than taking out a longer bank loan, even if the APR is higher for the payday loan (Source: MoneyBoat).

If you are an established or growing business with a good credit score, you may be able to negotiate your interest rate with a debtor to find a loan that suits you.

Short term loans can save you money by allowing you to avoid the even more expensive options of business credit cards and overdrafts.

How can short term business loans be used?

As with any type of loan, there are a variety of ways in which short term business loans may be used to help you and your business:

Startup costs for new businesses

Starting a business often requires more capital than we anticipate. A short term loan can provide the extra financial boost your company needs.

Help cash flow issues

If your business is seasonal or you are having a slow month, funds may be short during certain periods. Getting a short term loan may help you keep the lights on and maintain your customer’s confidence.

Fix broken equipment

Short term business loans will give you the funds you need in an emergency much more quickly than a bank can.

What about my credit score?

Bringing up your credit score as a business can be tricky. If you are a sole trader, you and your business are legally one entity so your business score reflects your individual credit score.

As a limited company, you may have to make an active effort to generate credit. If banks or debtors do not have sufficient information about your limited company, they may consider your personal credit score.

It is harder for a business to borrow money initially because the business has no credit. However, there are simple ways you can develop credit for your business.

Taking out a short term loan can help you generate credit. If you are proactive and make your payments on time, a short term loan can be used as a tool to help you boost your credit rating.

Additionally, you can open up a business credit card or issue business credit cards to employees at your company. Making consistent purchases and paying them off will show the bank that you are reliable and worthy of credit.

More on funding a business

ByteStart is packed with help and tips on all aspects of starting and funding your business. Check out some of our most popular guides;

Funding your business


Starting Up


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