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Short-Term Business Loans
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Short Term Business Loans
Written by
Shaun McGowanShort-term business loans are used in Australia by businesses that require fast access to finance and can demonstrate an ability to comfortably repay the loan amount over a short period of time.
In summary:
- Are available from banks and specialist lenders
- Will get the fastest approval from specialist lenders
- Only require your bank statements to assess approval
- Can range from $5,000 to $500,000
- Are offered between one month and three years
Key Features
- Borrow from $5,000 to $500,000
- Fixed or variable interest rates
- Repayments to suit your budget
- Terms from one month to five years
- Secured & unsecured options
Who is eligible?
- Own a business and have an ABN
- Business is GST-registered
- Permanent Citizenship or Residency
- Minimum business-operating time of six months
- Can provide business bank statements
Shopping around
Shopping around for the right loan can save you thousands of dollars in interest and fees.
What is a Short-Term Commercial Loan?
A short-term business loan is a type of secured or unsecured business finance. It is used by an established business to cover sudden business expenses, and is highly popular with seasonal businesses in Australia. Terms are generally between one month and three years.
A short-term business loan provides access funds from a lender for any genuine commercial purpose. Lenders will assess the revenue of a business to determine whether it can comfortably repay the loan amount. The business will agree to repay the loan amount plus interest over an agreed term.
The best loans will allow you to repay the loan amount early and without penalties.
Find the best rate on a short-term business loan
FIND YOUR RATENeed fast access to finance or a one-time credit facility?
A short-term business loan is used when a business needs fast approval on a loan and can demonstrate an ability to pay it back quickly. They are often used by small businesses to cover sudden expenses or to capitalise on a limited-time business opportunity.
There are two types of short-term business loans: Secured and Unsecured. A secured loan uses an asset — such as residential property — as a guarantee on the loan, while an unsecured loan does not require any security (also known as ‘collateral’).
In some cases — such as renting or purchasing assets for long-term business use — you may want to consider applying for equipment finance.
Need a new business vehicle or equipment for your business?
- Equipment finance
- Asset finance
- Truck finance
- Business car loans
- Chattel mortgage
- Finance lease
- Commercial hire purchase (CHP)
- Operating lease
You can read our guide to compare the benefits of a chattel mortgage vs lease vs hire purchase.
Is Short-Term Finance better than Long-Term Finance?
Not sure whether a short-term loan or a long-term loan is best for your business? Below, we'll discuss some of the key points of both types of finance so you can compare your options.
Short-Term Finance
Short-term business loans between 1 month and 3 years are often used by established businesses to cover sudden expenses — e.g. buying extra stock, paying a tax bill, or covering fluctuations in revenue — and can be either secured or unsecured.
Using short-term finance for major investments is a risky and expensive strategy, however, and could leave you struggling to meet your repayments.
Interest or factor rates on short-term business finance are usually higher than long-term facilities, making them a very expensive option if not repaid swiftly.
If you're considering short-term finance for your business, you'll want to compare lenders to get the best deal available. When comparing lenders, there are three important aspects to consider:
- The loan amount
- The interest rate
- The fees or charges for your loan
Long-Term Finance
Long-term business loans (loans of three years or more) are often used for financing major business purchases, such as vehicles, assets, and equipment, and will generally require security by the lender.
Using long-term finance for short-term business needs could leave you with an expensive facility even if you no longer need it.
Here’s what you need to know about long-term finance:
- Long-term finance facilities tend to have lower interest rate, but the interest compounds, and you’ll end up paying more interest overall than on a loan with a shorter term.
- Some long-term facilities have break penalties, which means you could pay substantial fees if you wish to make additional payments and terminate the loan early.
Many long-term business finance facilities require security. Your lender will have a legal interest in any assets you offer as collateral for a secured loan, so you will no longer be able to sell or replace them without getting approval from the lender first, which could be a slow or complicated process.
Have a unique need for business finance?
Short-term business loan case study
Type of Business: Retail
Loan Amount: $50,000
A retail business has been working hard for a number of years to operate in the same area as a competitor. Through hard work, persistence, and providing excellent levels of service, they are able to compete at a higher level than their rival retail store.
The competitor announces they are entering liquidation, and will be selling their remaining inventory at a heavily discounted price — but only for a few days. To maximise on the opportunity and secure the discounted inventory, the owner of the retail business takes out a short-term business loan to access immediate funding and close the sale on the remaining stock.
As the inventory is heavily discounted, the retail business greatly increases its profit margin on each sale, and the loan is able to be repaid in full before the end of the loan term. The following year, the influx of sales and new customers boosts both the retail store’s profile and profits.
Want us to do the calculations for you? Using our quick-and-easy business loan calculator, you can see the total repayment and interest amounts on any business loan in Australia.
Find the best rate on a short-term business loan
FIND YOUR RATEHow to qualify and apply
Qualifying for a short-term business loan is very simple — if your business bank statements illustrate an ability to comfortably repay your desired loan amount within the agreed loan term, you will qualify for approval. It really is that simple!
If you’d like to see which lenders can offer you asset finance, you can use our smart form to compare offers from lenders in Australia.
Most lenders will be able to provide options if you:
- Have been trading for at least 12 months; and
- Have an ABN; and
- Are registered for GST; and
- Have a clean credit history; and
- Own property or can provide a 20% deposit
If you don’t meet the above criteria, you can still get approved if you:
- Are self-employed or a sole trader
- Have been trading for between 6 - 12 months
- Have an imperfect credit history
- Do not own property
There are two main types of applications, which will depend on the amount you wish to borrow. If you are borrowing less than $100,000 the approval process will be fairly simple and you will likely be approved on the same day.
Most times, just your business bank statements will be sufficient to illustrate your monthly business revenue.
If you wish to borrow more than $100,000, your lender will require additional documentation to assess your application.
If this is the case, you’ll need to provide additional documentation to the lender so they can better assess your application. Here are some tips to improve your chances of getting approved.
If you are borrowing less than $100,000:
- Proof of identity
- An ABN and GST registration
- An acceptable credit rating — the lender will ask to conduct a credit check
- Business bank statements
- Trust Deed if the business is held in a trust
- Australian Tax Office (ATO) Portal access.
If you are borrowing more than $100,000:
- All the documentation provided if borrowing less than $100,000; and
- Financial records (provided by your accountant)
- Profit and Loss Statements
- Balance Sheet
If you are making an application for more than $100,000, you can speak to your bank or a lender directly to discuss your financial circumstances and need for finance.
If you are applying for less than $100,000, you can generally apply online with a number of different specialist business loan lenders, including those who provide short-term business loans designed specifically for SMEs.
Lenders will assess an application based on the monthly revenue of the business, its intended use for the loan, how the loan will benefit future business revenue, and more.
Each lender will have different approval criteria, but here are some tips to improve your chances of getting approved.
- Demonstrate an ability to service your business loan or lease.
- Meet the lender's criteria for acceptable credit rating
- Meet the lender's criteria for minimum turnover and maximum debt
- Provide profit and loss statements and your business balance sheet
- Provide details of the asset you wish to purchase
- Provide read-only access to your business bank statements
- Provide a personal guarantee by the director of the company
You can use the Money.com.au smart form to compare loan offers from real Australian lenders, and apply directly for a short-term business loan online with a number of specialist lenders. These lenders offer the fastest approval speed in return for charging higher interest rates than a bank.
How to avoid being declined
The number one reason a short-term business loan application will be declined is because your business financials do not illustrate an ability to service the loan amount. You can strengthen your application by providing a lender with a business plan — a detailed plan showing how you plan to use the funds and meet your repayments.
There may be other factors that influence a lender’s decision to decline an application, including:
- A bad credit rating — i.e. a business owner or director has bad credit
- Limited customer base — i.e. your revenue is too dependent on a small number of customers
- Poor projected growth — i.e. the outlook for your market sector is poor and your business may struggle to meet repayments over the term
- A new business — i.e. your business hasn’t been operating for long enough and a lender cannot accurately assess your revenue
If you have a bad credit rating or cannot provide sufficient documentation, there may still be finance options available to you. Consider seeing if you qualify for a low-doc business loan (if you are running a new business) or a bad credit business loan (if you have existing defaults on your credit file).
Here are the most popular short-term business loan questions people are asking:
How do I qualify for a short-term business loan?
If you operate a business in Australia, have an ABN and are registered for GST, you can likely qualify for a short-term business loan if you are able to provide bank statements and meet minimum operating criteria set by each lender.
How fast is approval for a short-term business loan?
If you are borrowing less than $100,000, you can generally apply with a lender online and get approved on the same day by only submitting your business bank statements and identification.
Can I use short-term finance for any purpose?
Technically, you can use short-term finance for any legitimate business purpose. However, there are a number of different business loans in Australia and each of them has its own benefits and best-use scenarios. Consider comparing all your options before applying.
How much can I borrow with short-term business loans?
You can generally borrow between $5,000 and $500,000 with a short-term business loan. However, this amount will vary between lenders and will depend on the strength of your application and business turnover.
Want to know more about Business Loans?
About the Author
Shaun
McGowan
Shaun McGowan
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
