The life of an entrepreneur can be full of surprises and unforeseen expenses. What if your most expensive piece of equipment breaks down, or a gap in your cash flow makes it hard for you to meet your monthly financial obligations? In these instances, you may want to look into quick funding options for small businesses as a short-term solution.
Quick business loans are time-sensitive financing solutions perfect for businesses in a cash pinch. If you see yourself in this situation, here are five quick business loans you can apply for:
1. Business Credit Cards
Business credit cards function like a personal credit card, but you can only use them for business expenses. They offer a revolving line of credit that can be used for a wide variety of business-related purchases like inventory, office supplies, equipment, or services. Business credit cards also tend to have higher credit limits than personal credit cards because businesses generate higher revenues.
Borrowers applying for a business credit card usually need to be in good credit standing, or meet a minimum annual revenue, in order to be approved. However, those with a less than stellar credit history may be able to provide a personal guarantee to mitigate the lender’s risk. A personal guarantee is essentially a promise the business owner makes to repay the credit issued to his or her business in the event that the business is unable to do so.
Business credit cards are an affordable funding solution for companies that don’t need an exorbitant amount of money, but want steady access to flexible financing. These cards can offer credit limits upwards of $50,000.
2. Business Line of Credit
A business line of credit is similar to a business credit card as both offer revolving credit that can be used and repaid as needed. How does it work? Business owners apply for a line of credit from a lender, and once approved, the lender will open the line for immediate access. The business owner can then withdraw any amount from it as long as they don’t exceed the pre-set limit. When it comes to repayments, they only have to pay back the amount they used, plus the interest on that amount.
Knowing that you have a credit line from which you can withdraw capital from is helpful, especially if you’re facing a pressing issue. You can use the money from your credit line to pay for things like renovations, employee payroll, or to pursue a business opportunity.
3. Short-Term Loans
A short-term loan provides a lump sum of money to business owners, which they can repay in fixed amounts over time. Unlike long-term loans that can take weeks or months to get approved, short-term loans can be approved in as quickly as a day or two. Short-term loans usually require daily or weekly repayments, plus interest, and have to be paid within a year.
Short-term loans are flexible and can be used for any business expenses, such as: bridging cash flow gaps, purchasing or repairing equipment, and business expansion. The application for short-term loans also requires less paperwork compared to long-term loan applications. However, since the loan period is shorter, short-term loans usually incur higher interest rates than long-term loans.
4. Invoice Factoring
With invoice factoring, business owners can turn their outstanding invoices into cash. Some businesses, like wholesale or service-providing companies, usually have to wait somewhere between 30 to 90 days to receive payments from their customers. This waiting period can easily disrupt the company’s overall cash flow. Invoice factoring allows business owners to sell their outstanding invoices for immediate funds they can then put towards daily operating expenses.
The way it works is that companies send an invoice to their client and then sell that invoice to a factoring company. The factoring company then funds the invoice for as much as 85% to 95% of the total amount. The remaining 5% to 15% will serve as the collateral for the cash advance. Once the invoice has been paid, the factoring company then deducts the loan amount, including the interest and any other fees or charges, and returns the remaining percentage to the business owner.
5. Merchant Cash Advance (MCA)
With a merchant cash advance (MCA), business owners can sell a portion of their projected future credit card earnings in exchange for a cash advance to meet current business expenses. This type of financing option is best for companies that take credit cards as payment for their goods.
An MCA is the easiest and fastest way to obtain funding when you’re in a cash pinch. Lenders usually approve MCA applications 24 hours after submitting the application form. It’s worth noting that lenders may charge higher interest or factor rates for a cash advance, usually 20% to 40%. This means that if you took out a merchant cash advance for $1,000, you’d have to repay $1,400.
Part of running a small to medium-sized enterprise is dealing with unforeseen expenses. Having a plan in place to obtain quick funding is a must. Understanding what your different options are is the first step so when such instances arise, you’re well versed on which option would provide the best solution. It’s also important you consider where you’d obtain such solutions. Alternative lenders are usually a more viable option as opposed to traditional banks. Whereas banks can take anywhere from weeks to months to approve an application, alternative lenders can process a loan application within days, sometimes as quickly as 24 hours.