Let’s face it; sometimes, small business owners have unplanned expenses. Whether your company has experienced equipment malfunction or you need to cover payroll, taking out a small business loan might be just the thing to help with your business needs. But if you haven’t heard, taking out a loan at a bank can be time-consuming, and when you need cash fast, you’re not going to want to go through a lengthy loan process. The good news is that there’s a way to speed things up. With alternative lenders, you may be able to secure a business loan much faster than you would with traditional lenders. In this article, we’ll discuss the pros and cons of getting a fast business loan, the types of loans available, and the various steps you can take to find one online.
Pros of a Fast Business Loan
Receiving your money as quickly as possible is by far the most significant benefit of a fast business loan. Your business is on a timeline. If you’re looking to secure cash fast, then you don’t want to wait for weeks, or even months, to learn whether you’ve been approved. If the answer is “yes,” then you want that cash as quickly as possible. And if the answer is “no,” then you need to know so you can pursue other financing options.
Another benefit is the quick and easy application process. When an online lender can offer you the option of filling out a short application online in just a manner of minutes, it will save you both time and stress in your pursuit of business financing.
Cons of a Fast Business Loan
With a fast business loan, your interest rate will be higher than with a traditional loan (but still significantly lower than a business credit card). As a result, you’ll be paying more for the money you receive, and you’ll need to make sure that taking out a fast loan still makes sense for your business. After all, there’s no sense putting your company in debt if it ends up sinking your business.
Another con is that the loan amounts are smaller and you’ll be limited in the size of the lump sum that you can take out. Fast business loans won’t be able to cover a large purchase, so you will need to assess whether or not taking out a loan makes sense if you’ll still be left with a significant gap between what you have and what you need.
How to Get a Fast Business Loan
If you decide that this is the right loan option for your business needs, the following steps will help you get started:
Step 1: Determine What Type of Loans You Qualify For
Before applying for any business loan, you should first determine which ones you qualify for and compare them with what you need.
Lenders will typically consider your credit score (both your personal credit score and business credit score), time in business, and income when determining if you qualify for a loan. They need to know that you will be able to cover your monthly payment schedule, either through your annual revenue or from your personal bank account if your business goes under. If you have bad credit, you are much less likely to get the business funding you are looking for.
Types of Fast Business Loans
Business Line of Credit
With a business line of credit, a lender will pre-approve you for a maximum credit limit, and you can withdraw as much as you need up to that limit. A business line of credit can sometimes be approved in less than 24 hours, and may only require a credit score of 500, so many business owners who have less than satisfactory creditworthiness choose this option. These types of loans can be beneficial because you only pay interest on the amount you withdraw. If you only withdraw a portion of what you qualified for, you will only pay interest on the amount you withdrew. The downside to this type of loan is that the interest rate can be higher than a standard business loan. On the plus side, a business line of credit can still help you establish business credit for future loans.
Short Term Loan
A short-term loan is one that you only have a short period of time to repay. The repayment rates can sometimes be hefty, though, and the payments will be more rapid. With these types of loans, it’s best to fully understand how the use of this loan will increase your revenue so that you know how you will repay it. Payment terms can sometimes be as often as once a week with a short-term loan.
Some short-term loans allow a business to make extra payments to pay it off quicker, while others will give you a penalty for early repayment. So be sure to check the terms and conditions of the lender you’re hoping to use before applying for a short-term loan.
Invoice Factoring (Not a Loan)
This is a method of financing where you sell your accounts receivable at a discount for a lump sum cash amount. It’s a little different from applying for a loan but can quickly provide the same result in receiving cash. This type of financing would be ideal for a business that doesn’t qualify for other loans due to credit score requirements, or for someone who was hesitant to provide a personal guarantee. There would be a slight discount (3 percent) to account for the factoring fee. Once the accounts receivable has been sold at a discount, the factoring company would be responsible for collecting payments from your customers.
While this type of financing can be finalized quickly, there are a couple of drawbacks. Future lenders might see this type of activity as a sign that your business is struggling. You would also be surrendering control of your accounts receivable. How the purchaser deals with your customers and collects payments will be out of your hands. The cost of selling your accounts receivable can be a drawback as well. However, it would be similar to taking out a loan and paying the additional cost of the interest rate.
Merchant Cash Advance (Not a Loan)
With a merchant cash advance, debt is repaid by giving the lender a percentage of credit card sales. You can receive the funding quickly; however, a fee will be tacked on to the advance, which will also have to be paid back. The size of the fee will be determined by how much of an advance you receive. One of the benefits of receiving a merchant cash advance is that the repayment is automatic, so you won’t have to think about making weekly or monthly payments. Of course, the downside is that you are likely to pay higher costs for this type of financing, so make sure you are clear on the repayment terms.
Step 2: Gather Necessary Paperwork and Information
Even though you’re looking for a quick business loan, the paperwork and information you’ll need aren’t much different than if you were applying for a standard loan. You’ll want to have the following documents on hand to ensure you’re able to fill out the application accurately:
- Business Plan: Regardless of how many loans you’ve applied for in the past or how long you’ve been in business, a business plan is always crucial. While quick loan applications that are done online may not require it, your business plan will come in handy if an underwriter is needed for a final determination. Having a business plan ready will also help provide a roadmap for where your organization has been and where it plans on going.
- Personal Credit Report: Your lender will pull this information themselves; however, you need to know where your credit is sitting. This will help you determine what type of loan you qualify for, as most will have a minimum credit score that is required.
- Business Credit Report: This report is just as important as the personal credit report. You’ll also want to have it handy and check for any inaccuracies in your credit history before applying (and the same minimum credit score rule applies).
- Personal and Business Income Tax Returns: Most loan programs will require that you submit both personal and business income tax returns with a commercial loan application.
- Financial Statements: These will differ slightly from the financial statements that are included with your business plan. The ones with your business plan will be projected financial statements, while these will be up-to-date and provide an accurate reflection of how your business is doing at this moment. You’ll want to have your balance sheet, profit and loss (income) statement, cash flow statement, and your bank statements attached to the application. There should be a minimum of one year of statements, though if you have two years, it might be better to link both. This can better show your business growth.
- Accounts Receivable and Accounts Payable: Having your current assets and liabilities handy is essential for all commercial lenders. They want to see where your recurring income is coming from, as well as your expenses, and if any cash flow gaps exist.
- Collateral: If your lender will require collateral, be sure to have any necessary paperwork ready and available before applying.
- Legal Documents: All legal documents for your organization should be included with the application. These can consist of your business license, permits, articles of incorporation, franchise agreements, third-party contracts, employer identification numbers, and commercial leases.
Step 3: Find a Lender
When it comes to finding a quick business loan, your best bet will be to stick to alternative lenders. Going the traditional route, through banks or the Small Business Administration (SBA), could slow down the process immensely. Many alternative lenders, like Biz2Credit, have an easy application process and a fast turnaround time. Online applications can be filled out within minutes and can usually have an answer for you within 24 hours. Once your application has been accepted, alternative lenders will also be able to supply funds rapidly, where SBA loans may be slower to get to qualifying borrowers.
Step 4: Apply
With alternative lenders, the application process is simple compared to the extensive paperwork application you’d need to fill out with your bank. For example, at Biz2Credit, you can apply in 4 minutes, have an answer within 24 hours, and receive funding within 72 hours.
Why Choose an Alternative Lender
When choosing a business lender for a fast loan, your best bet lies with an alternative lender that specializes in small business financing. The processing time of your application will be shortened to a matter of days, applying is more straightforward and less time-consuming, and if approved, you’ll have access to your cash a lot quicker than if you were to secure a loan or credit line through a more traditional route.
Applying for a business loan can be time-consuming. But as a business owner, there are times that you don’t have the option to wait for an answer. Sometimes, how quickly you receive cash will be what determines whether your business sinks or swims. If you are tight on working capital, you may need cash now. This isn’t something you should undertake lightly, but if you have weighed the pros and cons, and fast financing is what you need, alternative lenders may be just what you need.