Unexpected expenses can catch small business owners off guard. When your company faces a cash crunch and you need funds ASAP, it helps to know your options.
Whether you need to replace an important piece of equipment or purchase more inventory, fast business loans are financing options that provide business owners with fast cash. Funding usually takes 24 to 48 hours, depending on how your application goes.
If you need a quick injection of cash for your business, here are some of the options you might want to consider:
1) Business Lines of Credit
Having access to working capital when you need it is beneficial to business owners. Similar to a business credit card, a line of credit gives you spending flexibility by offering a set amount of cash that you can access at any time. You can withdraw any amount, as long as you don’t go over the credit limit and you only need to pay interest on the money you’ve withdrawn.
With a business line of credit, working capital is always available at your disposal. Repaying your credit line can also improve your credit score if you repay them on time. On the flip side, lenders may charge higher interest rates and require collateral to business owners with poor credit.
2) Merchant Cash Advance
A merchant cash advance gives business owners immediate funding to use for any business purpose. Lenders are paid back by taking a predetermined percentage of daily credit card sales until the entire amount is repaid.
It’s relatively easier to qualify for merchant cash advances as they have looser eligibility requirements compared to other business loans. For one, you don’t need good credit to qualify. As long as you have strong credit card sales, you’ll have a greater chance of qualifying.
The downside is that merchant cash advances are one of the most expensive loans in the market. If you qualify, be sure that you’ll be able to repay the loan.
3) Invoice Financing
Small business owners that invoice their customers know the difficulties of waiting for payments. It usually takes 60 to 90 days to receive payment and expenses will need to be paid, whether you have the cash to cover them or not.
Invoice financing allows business owners to sell their invoices in exchange for upfront working capital. Lending companies usually advance 85% to 90% of the loan. The rest of the 10% to 15% will be given to you once your customers repay their invoices, minus a small transaction fee.
The benefits of invoice financing are immediate access to funds. Business owners with poor credit ratings can qualify because lenders are more concerned about whether your customers can repay the invoices or not. Additionally, you don’t need collateral since the invoices secure the loan. The disadvantage is that if your customers don’t repay their invoices, you might be stuck with more debt to repay.
4) Short-Term Loans
A short-term loan is similar to your classic term loan, where you’ll be given a lump sum that should be repaid within a specified period. The difference is that the repayment terms are shorter, usually within six months to two years. The total loan amount is generally lower than your regular term loan and you may need to repay the loan more frequently.
Aside from the quick funding, other benefits of short-term loans include limited documentation and you can use the funds for any business purpose. On the other hand, the cost of the loan can quickly pile up if you don’t pay your dues in time. As with merchant cash advances, be sure to evaluate your business before applying for short-term loans.
5) Equipment Financing
Equipment financing provides businesses with the funds needed to purchase or lease equipment in as little as 48 hours. With these funds, you can acquire company vehicles, machinery, heavy equipment, furniture, and other tools specific to your industry.
Qualifying for equipment financing is easier compared to bank loans because the equipment purchases secures the loan, which significantly lowers the lender’s risk. However, some lenders may ask for a down payment of 10% to 20%, but qualified borrowers can qualify for 100% financing. Repayment terms depend on the life of the equipment, but the average for heavy equipment is usually between five to seven years.
Transportation businesses, restaurants, construction companies, healthcare, and other industries that rely heavily on equipment to operate benefit the most from equipment financing.
The Bottom Line
Deciding on the right type of loan for your business requires research and evaluation. You’ll need to consider the following options:
- Why you need financing;
- How fast you need the money; and
- Is the cost of fast business loans worth it?
Once you have the answers to these questions, you’ll know whether you need short-term or long-term funding. Whatever you choose, make sure that the loan meets your needs and that you can repay it on time.