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The benefits of a short-term business loan
Learn about short-term business loan options
Loans come in all shapes and sizes and there’s normally a loan product for every situation. Short-term loans can be handy solution for various business problems, but what choices are there on the table? Find out about short-term business loans and how to compare your options here.
What are short-term business loans and how are they different to others?
A short-term business loan refers to a business loan used as a short-term solution to a problem rather than a long-term investment for your business. They’re designed to be paid off within one to three years and deal with smaller amounts that can be paid off more quickly, from micro loans as small as $5,000 up to $300,000.
While a long-term loan might be suited to large scale projects like buying a property or opening up a new outlet for your business, short-term loans are more suited for things like upgrading equipment, consolidating debt, paying wages or even providing the upfront finance to run an event or conference.
There are many different types of business loans that could be regarded as short-term loans, so your business has a wide variety of temporary finance options on the table.
If you’re looking for a short-term loan to provide finance for your business, Savvy is a great place to start. With our rate tables, you can compare the best options on the market to see which is the perfect fit for your business situation. You can also use our business loan repayment calculator to work out the costs of different loans based on terms, rates and other factors.
What types of short-term business loans can I get?
In Australia we have a great variety of choices for both lenders and short-term finance, so you’ve generally got plenty of loan options to compare. So, what are some of the short-term loan possibilities?
Unsecured loans – These are the most versatile short-term loan option, especially for small businesses. Unsecured business loans are available from a wide variety of lenders and don’t require any deposit or collateral. They can be for anywhere from a few thousand dollars to $200,000 to $300,000 and can be used for a variety of business expenses, such as upgrading your premises, paying employee wages and buying extra stock. They’re also one of the easiest short-term loans to get approved thanks to their lack of security requirements, making them a good option to explore if your business struggles with bad credit.
Equipment finance – Equipment finance is a short-term finance option to give your business access to equipment that you couldn’t otherwise afford. The lender retains ownership of the equipment, but you get to keep it on your premises and use it throughout your agreed-upon term. It’s like renting, except that the equipment can be highly specialised – such as state-of-the-art medical imaging facilities or special-purpose agricultural vehicles.
Hire purchase – Hire purchase is a little like equipment finance, except the interest rates are generally higher. The trade-off is that once you’ve paid off the loan, you get to keep the equipment, so it’s like rent-to-own on a grand scale.
Chattel mortgage – A chattel mortgage is similar to equipment finance or hire purchase, but it functions more like a home or car loan in regards to collateral: you’re borrowing money to buy a significant piece of equipment, but then you’re using that same piece of equipment as security for the loan. Unlike hire purchase, you officially take ownership of the equipment at the beginning of the loan – not at the end.
The types of business finance
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What other options do I have for short-term business finance?
Business credit card
A business credit card is similar to a personal credit card, except that it’s tied to your business’ finances rather than yours. It gives you the same flexibility with borrowing money at need – normally at pretty steep interest. Just like a personal credit card, it’s best suited to expenses that can be paid off quickly – preferably within a couple of months.
Business line of credit
A line of credit has some similarities with a credit card. It involves your lender setting aside an amount of funds that your business can call on at need. Just like a credit card, you only pay interest on the money you’ve borrowed. Unlike a credit card, though, it’s often only available for a specific period of time (often between one month and three years, although some lenders will go longer). The penalty fees for late payments and going over the credit limit can also be very high.
Invoice financing
This is a unique form of financing which involves selling on some of your outstanding invoices (i.e., the money other people owe you) on to a lender. The lender pays you a proportion of the invoice amount and takes on the responsibility of collecting the debt. Once the debt is repaid, they’ll pay you the remaining amount – minus fees and interest.
Merchant cash advance
A merchant cash advance is a kind of finance where, rather than making repayments at a set rate, a lender agrees to take a percentage of your business profits to progressively pay off the loan. It gives you some protection against being overwhelmed by loan repayments in a slow business period, but it’s only really suitable for businesses with a steady cash turnover. There’s also less government regulation on these loans – it’s technically a “sale of future revenue” rather than a loan, so it’s not subject to the normal rules of small cash loans.
Frequently asked questions about short-term business loans
Is it cheaper to get a low-rate, long term business loan and just pay it off sooner?
In theory, one of the ways to secure a cheap loan is to opt for a shorter term – but it might not be that easy in practice. Quite apart from long term loans often having significant fees for early repayments, they’re generally much harder to secure than a short-term loan. Secured loans, for example, require a significant asset to be offered as security and can take many weeks to process. They can also have more substantial minimum amounts, which sit at loans of $10,000 of more for many lenders. You might be able to make it work, but it won’t be a simple option.
If my cash flow is seasonal, can I still get a short-term business loan?
Yes – many lenders are willing approve commercial financing for businesses that have seasonal cash flow, such as agricultural businesses. You’ve still got many options on the table.
Do I have to be operating in a big city to get approved for short-term financing?
No – you don’t have to be a business looking for finance in Sydney or applying for a loan in Melbourne. Businesses all over Australia, whether in capital cities or out in the regions, are able to access the finance they need with an online business loan. Lenders are more concerned with your business’ ability to cover its loan repayments and meet the required criteria than where it’s based.
Do I have to take out a short-term unsecured loan to purchase equipment for my business?
No – if you’re looking for finance as a tradie, or anyone else for that matter, you’ll also have the option of seeking out equipment financing. This is a type of secured finance which utilises the purchase of your chosen piece of equipment as collateral for your loan. The major benefit of this is that you can gain access to lower interest rates and potentially longer terms, which you can achieve by applying through Savvy and having your application handled by one of our experienced consultants.
Can I still get a short-term business loan with bad credit?
Yes – bad credit business loans are a special type of loan specifically for businesses with a poor credit rating. Many common types of short-term finance, including unsecured loans, can be taken as a bad credit loan. They cost more, but they’re a good option if your business’ credit score is making it hard to get a loan approved. Many online lenders can offer a bad credit loan, so it pays to shop around.
Will being a sole trader rule me out of getting a short-term business loan?
No – a sole trader won’t rule you out of getting business finance in Australia, as long as the money is specifically going into the business. Short-term business loans are well suited to small businesses, as they deal with smaller amounts and are often far easier to get approved.
Is it better to take out a short-term business loan or bridging finance?
In most cases, you’re likely to be better off with a short-term unsecured business loan. These are more widely accessible and won’t require any asset collateral (which bridging finance often does). On top of this, in many cases, you can more easily pay these off ahead of schedule should you acquire the funds you need and may attract a lower interest rate in some cases.
How fast is the overall business loan application process?
From submitting your application to receiving your quick business loan funds can take just 24 hours, down to as few as only two with some lenders. Unsecured finance is fast to process thanks to the lack of asset collateral required, so provided your business meets the various criteria relating to revenue generated, time trading and more, you can have your funds as soon as the same day you apply.
Still looking for the right finance for your business?
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