The Pros and Cons of Short-Term Flexible Business Loans

Portman specialise in business loans that are designed to support UK SMEs, whether you need £10,000 or £500,000, our short-term flexible loan options come with monthly flat rates from 0.65% and repayment terms ranging from 3 months to 2 years.  

We’re here to guide you through the pros and cons of short-term flexible funding options and why they might be a better alternative for you than a traditional long-term loan.

What Are Short-Term Flexible Business Loans?

A flexible loan or ‘FlexiLoan’ is a type of loan with adaptable repayment options. You make a minimum monthly payment but can choose to pay extra, which reduces the overall loan term and sometimes allows you to settle early. Interest is only payable until the point of settlement, so this option can be cost-effective if paid off sooner.

Short-term loans consist of any loan that has a short repayment period, usually anything from 3 months – 2 years, as opposed to long-term loans that can last up to 6 years. Examples of popular short-term loans options are Merchant Cash Advances (MCAs), Invoice Finance, Bridging Loans and VAT Loans.

Combining a short-term with a flexible repayment option can offer less long-term commitment and greater freedom in how and when repayments are made, something many business owners find useful for covering immediate or temporary needs.

Common Uses of Short-Term Flexible Funding

There are a large range of uses when it comes to short-term flexible loans, but the following are some of the most common for this type of finance:

Quick Cash Flow Injections

If your business experiences temporary shortfalls, like irregular income or delayed payments from clients, a short-term flexible loan can cover operational expenses for that period.

Covering Seasonal Expenses

When demand rises seasonally for different industries, short-term flexible loans can help to cover costs like additional stock and staffing during a busy season. This enables you to meet demand without straining your cash flow.

Time-Sensitive Business Opportunities

A short-term flexible loan can provide the funds needed to buy stock or materials in bulk while they are at a reduced price, or to take advantage of growth opportunities that arise. This allows you to seize trading opportunities that require immediate capital.

Paying For Emergency Costs

Unexpected bills like machinery repairs or the replacement of broken equipment can occur at any time. A short-term flexible loan offers a financial safety net, helping you to handle sudden costs without disrupting financial stability.

Advantages and Disadvantages of Short-Term Flexible Loans

Advantages

Accessible Type of Loan

Short-term flexible loans can be easier to obtain than long-term loans, making them accessible to a broader range of businesses. They usually require less paperwork and have a simple application process. In some cases, approvals can be granted within hours and funds released in as little as 24 hours. This turnaround is beneficial when you need quick access to funding.

Bridging Short-Term Cash Flow Gaps

In situations where you need to manage operational costs, cover unexpected expenses, or handle delayed income, short-term flexible loans provide a solution for temporary cash flow strains. They enable operations to continue running smoothly and support your business’s overall financial stability.

Flexible Repayment Options

These loans offer the advantage of adaptable repayment schedules, that can be tailored to your business’s financial situation. This includes the ability to make early repayments and, in some cases, to settle early. You have greater autonomy over the way you decide to repay the loan, which is especially helpful when managing fluctuating income or unexpected expenses.

Can Be a Cheaper Option Overall

While short-term flexible loans often come with higher interest rates, their shorter repayment periods and the option to settle early can result in lower costs in comparison to other types of borrowing. The faster repayment period allows you to minimise interest, making this loan a cheaper option overall if you can repay it promptly.

Disdvantages

Tailored Towards Smaller Needs

A drawback of short-term flexible loans is that they are designed to meet smaller financial needs, making them less suitable than a long-term loan would be for a larger investment. While they can be useful for boosting cash-flow and supporting growth opportunities, relying on short-term funding for major expenses or to sustain your business during challenging periods can lead to financial strain.

Interest Rates Can Be Higher

This type of funding can carry higher interest rates compared to long-term financing options due to the convenience, speed of access, and reduced borrowing period that they offer. For many, the ability to access funds quickly and tailor repayment periods outweighs this short-term cost.

Larger Regular Payments

As these loans have a shorter repayment period, they are usually paid back in larger installments but over a shorter time. While the loan is repaid quicker, these higher installments may come as a challenge if they are not carefully planned for. Your ability to meet these regular payments consistently should be considered, so they do not become a strain.

Is This Loan Type Right For Me?

Assess your financial situation – Consider your income, assets, liabilities and credit history, as these factors can impact the rate, amount and term you are likely to be offered.

You may need to be prepared to sign a PG – Lenders often require a personal guarantee or PG, as it provides security if your business can’t repay the loan. It can help you access better rates and terms, but it’s important to consider if you’re comfortable with taking on responsibility by signing one.

Do your business needs align with this type of loan – These loans are great for short-term needs, temporary issues, or sudden opportunities, but not for business survival, where a change of strategy or approach is needed. Think about the specific benefits of a short-term flexible loan and whether it aligns with your business needs more than other options do.

Written by Elise Dovaston

Marketing Administrator

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