A short-term business loan is one way to cover a cash-flow gap, but it is not the only way, and it is not always the cheapest. Before your company borrows, it is worth knowing the main alternatives so you can pick the right tool for the job. This is a neutral overview — none of these is universally better, and the right choice depends on your situation.
Business bank overdraft
An overdraft attached to your business bank account lets you spend beyond your balance up to an agreed limit, and you usually pay interest only on what you use. It is flexible and well suited to small, short, unpredictable gaps that you clear quickly.
The catches: arranged overdrafts can be harder to obtain than they once were, the bank can often reduce or withdraw the facility, and unarranged overdraft costs can be high. If you have one, it is frequently the cheaper option for a brief dip. We compare the two directly in bank overdraft vs short-term business loan.
Business credit card
A business credit card suits smaller, recurring purchases and can be cost-effective if you repay the balance in full each month, since many cards offer an interest-free window on purchases. Used that way, the credit can effectively be free.
The risk is carrying a balance: interest on revolving card debt mounts up, and it is easy to let a short-term convenience become a long-term cost. A card is a poor choice for a sum you cannot clear quickly.
Invoice finance
If your business is owed money by customers, invoice finance lets you raise cash against unpaid invoices rather than waiting for them to be paid. A provider advances a proportion of the invoice value up front and releases the rest, minus their charge, when the customer pays.
It can work well for businesses with reliable but slow-paying customers, turning money you are already owed into money you can use now. The cost depends on the provider and the arrangement. We look at it alongside short-term borrowing in invoice finance vs short-term loan.
Grants and government-backed schemes
Depending on your sector, location and stage, your business may be eligible for a grant or a government-backed scheme — money that, in the case of a true grant, you do not repay. These are competitive and come with eligibility conditions, but free or subsidised funding is always worth checking before you take on debt.
The reliable starting point is gov.uk, which lists business finance support, grants and the Start Up Loans scheme. Start with the official source rather than third-party sites, and be wary of anyone charging a fee to “find” you a grant.
Other routes worth a thought
Depending on the situation, you might also consider negotiating longer payment terms with suppliers, asking customers to pay sooner, a director’s loan into the company if funds are genuinely available, or asking HMRC about a Time to Pay arrangement for tax owed. Each has trade-offs, but several cost little or nothing.
Where a short-term loan fits
Against this backdrop, a short-term business loan like ours is best seen as one tool among several — useful when the gap is genuinely short and defined, the money to repay is reliable, and the alternatives above do not fit or cannot move quickly enough. It is, honestly, more expensive than an overdraft or a card paid off in full, so it earns its place only when speed and certainty matter and a cheaper option is not available in time.
If, after weighing these up, a short-term loan is the right fit, you can see the amounts, terms and costs we currently offer on our business loans page. If a cheaper option fits better, use it — we would always rather you chose the right tool than simply the quickest one.
Still need help with this?
If this article has not answered your question, you can send us a request using one of our online forms, visit the Support page, or email us at support@credicorp.co.uk.