Is Short Term Finance Right For You?

Many businesses will find themselves in a position where they need to secure additional funds in order to cover expenses or take the next steps in growing their enterprise.

Of course, with finance, it’s important to carefully consider which type is right for you.

Here’s our guide to short term finance which will help to establish whether it’s right for you.

What is short term finance?

Short term finance is any borrowing that is paid back over a shorter period, typically in under one year.

What are the types of short term financing?

The main types of short term finance include:

Merchant cash advances

For companies receiving payments via credit or debit card, merchant cash advance usually relatively easy to secure and quick to fund.

Merchant cash advances are one of the most expensive types of short term finance, with the APR potentially reaching triple figures, depending on total sales each day.

The benefit of this short term funding method is that repayments are directly tied to sales, so if the business has a quiet month, the repayments will be lower in response.

Short term loans

Short term loans are typically less expensive than merchant cash advances. You’ll receive capital from your lender, which you’ll pay off with interest following an agreed schedule – just like a regular loan.

The key difference with a short term loan is that it is paid back over a much shorter period. A further benefit is that funding can usually be provided quickly (sometimes within 24 hours). However, there are also several disadvantages involved in this type of short term lending – you’ll be required to pay the loan back relatively quickly, make frequent payments, and the interest rate will usually be high.

Business line of credit

Business line of credit is one of the most affordable types of short term finance available.

Working in a similar way to a business credit card, if you qualify for a business line of credit, you’ll have access to a line of credit, from which you can pull working capital. You only have to pay back what you spend.

The benefits of business lines of credit is that they typically come with lower APRs than business credit cards, making them a great back up to have on hand ready to cover quieter spells or temporary cash flow issues. This short term finance method can be accessed in as little as one day.

Invoice financing

Invoice financing provides an advance payment for your business’ outstanding invoices.

This is a relatively quick and affordable form of short term finance, allowing with rates of around 3 percent plus 1 percent for each week the invoice remains unpaid. An advance can cover anywhere from 50 – 90 percent of an outstanding invoice. When the customer pays, you’ll receive the remaining amount minus the interest incurred.

What are the advantages and disadvantages of short term finance?

If you’re considering applying for short term finance, it’s important you’re aware of the pros and cons that come with this type of lending.

First, let’s take a look at the advantages of short term finance:

  • Access to quick capital when you need it most
  • Relatively easy to quality for, even with a low credit score or short business history
  • Shorter term means finance typically accumulates less interest

Of course, there are also disadvantages to consider:

  • Higher ARPs
  • Shorter payment terms, which can put strain on small business
  • Frequent payments
  • Arrangement fees and Exit fees may be applicable

Find out more

With extensive market knowledge, we’re experts when it comes to short term finance for businesses. To find out more about short term finance, the options available, and whether short term financing is right for you, please get in touch.

Carol Jones
Carol is an experienced Case Manager in the Finance sector who enjoys working with our clients in order to realise their dreams. Specialising the in hospitality sector, she helps to put funding in place for people looking to buy a B&B, Guest House or Hotel.

More by the author