Short-term financing has become a core part of how many UK businesses manage day-to-day operations. It is used to cover immediate needs rather than long-term investments, and typically takes the form of overdrafts, credit cards, short-term loans, invoice finance or revolving credit facilities. These products exist to bridge timing gaps, pay suppliers, handle payroll or deal with unexpected dips in revenue.
In practice, the number of businesses relying on this type of financing is significant. Surveys show that nearly half of UK SMEs face cash-flow challenges. Around 45 percent of firms seeking external finance say they do so specifically for working capital. Late payments from customers make the picture even more difficult, with almost two thirds of SMEs reporting delays as a major issue. As a result, even profitable companies find themselves reaching for short-term credit to stay liquid.
Short-term finance solves an immediate problem, but it comes at a cost that is often higher than many businesses realise.
In practice, the number of businesses relying on this type of financing is significant. Surveys show that nearly half of UK SMEs face cash-flow challenges. Around 45 percent of firms seeking external finance say they do so specifically for working capital. Late payments from customers make the picture even more difficult, with almost two thirds of SMEs reporting delays as a major issue. As a result, even profitable companies find themselves reaching for short-term credit to stay liquid.
Short-term finance solves an immediate problem, but it comes at a cost that is often higher than many businesses realise.
The true cost of short-term borrowing
Short-term credit facilities may offer convenience, but they are some of the most expensive forms of borrowing. Data from the British Business Bank shows that new SME loans in early 2024 carried weighted average interest rates around 7.5 percent. Overdrafts tend to be even more expensive, with representative EARs often falling between 13 and 16 percent. Some banks list overdraft rates above 14 percent, along with annual arrangement or renewal fees.
For a business using an overdraft to pay a large expense like rent, the cost escalates quickly. A company paying £10,000 in rent while sitting in overdraft for a month could easily pay more than £100 in interest for that single month alone. Over a year, this becomes more than £1,400 in interest before even accounting for the rent itself.
What begins as a temporary solution can easily turn into a recurring debt cycle. Once a business starts relying on short-term borrowing each month, interest charges begin to erode margins, restrict budgets and reduce the flexibility needed to invest in growth.
For a business using an overdraft to pay a large expense like rent, the cost escalates quickly. A company paying £10,000 in rent while sitting in overdraft for a month could easily pay more than £100 in interest for that single month alone. Over a year, this becomes more than £1,400 in interest before even accounting for the rent itself.
What begins as a temporary solution can easily turn into a recurring debt cycle. Once a business starts relying on short-term borrowing each month, interest charges begin to erode margins, restrict budgets and reduce the flexibility needed to invest in growth.
The impact on SME growth and stability
The more a business relies on credit to manage monthly spending, the harder it becomes to reinvest. Interest payments divert resources away from hiring, product development, marketing and other growth activities. Cash flow becomes tighter because a portion of each month’s income is already committed to covering last month’s interest and fees. Over time this turns into a cycle that limits risk-taking and stalls expansion plans.
Research consistently shows that businesses with healthy cash flow are significantly more likely to grow. When cash is readily available, companies can secure better supplier terms, react quickly to opportunities and withstand unexpected shocks without resorting to high-cost borrowing. Managing large outgoing expenses efficiently is therefore a key driver of long-term stability.
Among those large expenses, rent is one of the most important.
Research consistently shows that businesses with healthy cash flow are significantly more likely to grow. When cash is readily available, companies can secure better supplier terms, react quickly to opportunities and withstand unexpected shocks without resorting to high-cost borrowing. Managing large outgoing expenses efficiently is therefore a key driver of long-term stability.
Among those large expenses, rent is one of the most important.
Why rent makes the cash-flow challenge worse
Rent is often one of the biggest fixed costs for businesses across retail, hospitality, warehousing and office-based sectors. Missing a rent deadline isn’t optional, and for many companies the rent due date arrives before revenue has entered the account. This misalignment is one of the most common triggers for businesses dipping into overdrafts or short-term loans.
Using credit for rent dramatically increases its real cost. Instead of paying only the contracted rental amount, the business also pays the interest associated with borrowing. This makes an already large expense even more burdensome and increases financial pressure every month. Because rent is predictable, recurring and substantial, relying on credit to cover it quickly becomes one of the least efficient ways to manage cash flow.
Using credit for rent dramatically increases its real cost. Instead of paying only the contracted rental amount, the business also pays the interest associated with borrowing. This makes an already large expense even more burdensome and increases financial pressure every month. Because rent is predictable, recurring and substantial, relying on credit to cover it quickly becomes one of the least efficient ways to manage cash flow.
Why businesses are exploring alternatives
When businesses look closely at the cost of short-term borrowing, many begin questioning whether it makes sense to pay rent this way. Rent is predictable. Its timing is fixed. And unlike unexpected bills or supplier delays, it is not a volatility issue but a cash-flow scheduling issue. That means the problem can be solved without relying on credit.
A growing number of companies now prefer predictable, fixed-fee payment methods over interest-based borrowing. Fixed fees make costs easier to plan for, protect margins, and avoid the risk of a temporary cash-flow issue turning into a recurring debt problem. Another advantage is tax efficiency. When a business pays a simple processing fee instead of using credit, that fee is typically tax-deductible. The effective cost becomes lower than the headline percentage.
Card payments also provide an added benefit that borrowing does not: rewards. Many businesses use corporate cards to earn points on travel, accommodation or operational expenses. If a major outgoing like rent can generate those rewards, it creates additional value.
A growing number of companies now prefer predictable, fixed-fee payment methods over interest-based borrowing. Fixed fees make costs easier to plan for, protect margins, and avoid the risk of a temporary cash-flow issue turning into a recurring debt problem. Another advantage is tax efficiency. When a business pays a simple processing fee instead of using credit, that fee is typically tax-deductible. The effective cost becomes lower than the headline percentage.
Card payments also provide an added benefit that borrowing does not: rewards. Many businesses use corporate cards to earn points on travel, accommodation or operational expenses. If a major outgoing like rent can generate those rewards, it creates additional value.
A more efficient way to pay rent
This is where Payr becomes an attractive alternative. Businesses can pay rent using a debit or credit card and benefit from a clear, predictable 2% fee. The payment settles instantly, eliminating the need to fall back on overdrafts or short-term finance to meet rent deadlines. Because the fee is tax-deductible, the effective cost becomes lower than 2 percent depending on the company’s tax rate. At the same time, businesses earn card rewards that can be used toward flights, hotels or other operational needs.
When rent is one of your largest monthly expenses, reducing the cost of paying it and avoiding reliance on high-interest credit is not just a financial optimization. It is a strategic decision that improves liquidity, strengthens cash flow and creates long-term resilience.
When rent is one of your largest monthly expenses, reducing the cost of paying it and avoiding reliance on high-interest credit is not just a financial optimization. It is a strategic decision that improves liquidity, strengthens cash flow and creates long-term resilience.
