Short-term business loans

A short-term business loan is exactly what it sounds like: money you borrow now and repay within a year or so. It’s one of the quickest kinds of business finance to arrange, and one of the easiest to misuse. Used for the right job, it’s a sharp tool. Used as a permanent crutch, it can drain a business.

The right jobs for a short-term loan

• A contract with a known payment date. You need to buy materials now and you’ll be paid in three months.
• A seasonal peak. Stock up for Christmas, the ski season or harvest, and repay from the busy months.
• A one-off bill. An insurance premium, a lease bond or an equipment repair that has to be paid now.
• A bridge to cheaper finance. Covering a gap while a bank loan or first mortgage is being assessed.

The common thread is a clear end point. If you can’t say what event or income will clear the loan, a longer term will usually serve you better.

Unsecured or property-backed?

	Unsecured short-term	Property-backed short-term
Typical amounts	$5,000 to $500,000	$20,000 to $5,000,000
Decided on	Turnover and bank statements	Equity and exit
Paperwork	Bank statements, ID	Title, valuation, ID, exit evidence
Speed	Same day possible for smaller amounts	$20k to $250k possible same day once complete
Credit issues	Harder to get past	Often workable

If you own property and need more than your turnover supports, a short caveat loan may cost less in total than a large unsecured loan, even though it involves more steps.

Work out the repayment before you sign

Short terms mean bigger repayments. Before you agree to anything, turn the repayment into a weekly figure and compare it with a normal week’s takings, not your best week. If a $60,000 loan over six months means roughly $2,700 a week once costs are included, and your average week leaves $3,500 after wages and rent, that’s tight but workable. If it leaves $1,500, it isn’t.

Some short-term lenders debit repayments daily. That can suit a café or retailer with daily takings, but it means less flexibility in a slow week. Ask whether weekly or fortnightly repayments are available.

What a short-term lender will ask for

For an unsecured short-term loan, expect to link six to twelve months of business bank statements, provide photo ID for each director and explain what the money is for. Some lenders also ask about any other loans and your ATO position. For a property-backed short-term loan, add the property details, a statement for any existing mortgage and evidence of how the loan will be repaid. Having these ready before the first call is the simplest way to keep a quick loan quick.

Watch for stacking

The fastest way to get into trouble with short-term lending is to take a second loan to cover the first. Each new loan brings its own establishment fee and repayment, and within a few months the business can be paying several lenders at once. If you already have one short-term loan and need more, it’s usually better to refinance everything into a single longer facility, possibly secured on property, than to add another.

An illustrative example

A Darwin air-conditioning installer wins a contract to fit out a new medical centre. It needs $70,000 for units and ducting before work starts, and the builder pays in two stages, at 60 and 120 days. The business takes a six-month unsecured loan with fortnightly repayments sized well inside its normal service income, and makes a lump-sum repayment when the first stage is paid. Illustrative only.

Questions to ask any short-term lender

• What’s the total repayable, in dollars?
• How often are repayments taken, and on which day?
• Is there a benefit to repaying early, or a fee?
• What happens if a repayment is missed?
• Will the loan appear on my credit file?

Planning the exit

Even short loans need an exit plan. Mark the end date in your diary, set aside the final payments as income arrives, and if you’re bridging to a longer loan, start that application early. Our guide on planning the exit from a short-term loan applies to unsecured loans as much as property ones.

See if a short-term loan fits

Tell us the amount, what it’s for and how it will be repaid. We won’t check your credit file when you enquire, we don’t hand your details to a crowd of lenders, and one person will call to talk through whether short-term is right or something longer would suit better. Honest answers get you a useful answer faster. Make an enquiry.