What are the risks with short term loans?

One risk is cash drag. There is likely to be a delay in reinvesting your money after it is repaid. When the loan period is shorter the depression of the effective interest rate by this cash drag is higher. So you might be better off in the long run by waiting a week and putting your money into an 18 month loan.

thanks both. 
why is august the quietest period for p2p

Looking at current SM feast across platforms I don't think it can take that long to redeploy repaid capital at similar rate.

I somewhat agree, but on the flipside you do at least have good visibility of most of the facts for the whole loan duration if it is short. 5 years opens the wormcans of what inflation, or the business, might conspire to do to you somewhere over the horizon.

Like most things, the answer is probably a mix/balance between long and short. There aee plenty of risks, including all those we have yet to think of.

When comparing the expected return between short vs. long-dated loans you need to take account of how the default probability is distributed over the lifetime of the loan vs. the timing of received cashflows.

Take as an example, two 12-month loans, both with a coupon of 12%, paid monthly in arrears, with a default probability of 10%/annum and a recovery rate of 50%. We can consider two distributions for the default intensity: one linear over the lifetime of the loan and the other a "jump-to-default" (JTD) at expiry of the loan. A trivial calculation shows that
NPV (12m, linear) = 6.3%
NPV (12m, JTD) = 6.9%
The higher NPV of the loan with a JTD is driven by the expectation that more coupons are paid, prior to any default at maturity.

If we look at the NPV for the loan held just for the first 9 months and then liquidated at par, then
NPV (9m, linear) = 4.8%
NPV (9m, JTD) = 9.0%
The loan with a JTD has zero default risk in the first 9 months and thus the NPV is simply 9% (9x1% coupons).

By simple conservation of cashflows, the NPV of the loan held over 12 months must be equivalent to the NPV of the loan held for 9-months and a loan held for 3-months, starting in 9-months time. Thus one can infer that
NPV (last 3m, linear) = 1.5%
NPV (last 3m, JTD) = -2.1%

So in this example, while the loan with a JTD risk has a higher NPV than that with a linear default risk over the total life of the loan, the behaviour in the last 3-months is very different. The NPV of the loan with a JTD starts to fall and becomes negative. The effective 10% default probability is being compressed into a short period (i.e the 3-month default rate, 9-months forward is above 40%). A 1-month loan, for example, would have a negative NPV of -3.7%. As time gets shorter, the NPV of loans with a JTD will tend toward the loss-given default (LGD) which is 5% (10% default prob x 50% recovery).

Many property bridge loans (on a number of P2P platforms) can be approximated as loans with a JTD at expiry. Since the interest is taken upfront, or all interest is rolled up to term, then the risk of default is small during the term but is concentrated at redemption.