April 3, 2021 | Last Updated on: January 9, 2024
DISCLAIMER: This article was written in 2021 and has not been updated. For more up to date information on economic impacts to small business funding, please read this recent article Key Things You Need to Know in the Funding Process
A small business owner who has an urgent need for funds will have a keen interest in seeking out loan products that boast an expedient approval process.
Fast business loans that the owner of a small company can count on to be approved in short order can be integral to keeping a business afloat and minimizing the trepidation of cash flow difficulties.
How can you get a quick business loan? A lot will depend on the funding provider and their particular application process, but there are a few key factors that you can look for before you decide to apply.
These loans and financing options are among the best ways to get quick funding for your business:
Sometimes a business line of credit can be approved in as little as 24 hours or less. Depending on the lender, you might only need a credit score of 500 to qualify for a business line of credit.
When a lender provides pre-approved funding with a maximum credit limit, that is known as a business line of credit. If the borrower is approved for this line of credit, funds can be accessed whenever they are needed until the established credit limit has been reached.
Because the borrower is only paying interest on the amount that he or she withdraws, a business line of credit can be advantageous for business owners who are uncertain of the amount of funding they will actually require, or when they might need it.
The drawback to a business line of credit is that the loan will be at a rate that might be considerably higher than other types of loans. How costly that would be is heavily dependent on the amount of funds the entrepreneur ends up using.
If a business owner needs to establish a favorable credit history, a business line of credit could help him or her do that.
Like a credit card, the borrower is not required to make any payments until and unless there is an amount due.
In one case, a business owner is approved for a $50,000 business line of credit with a 12% interest rate. Then the owner waits three months prior to making a withdrawal. If he owes no monthly payments during that time, once he decides to make a $20,000 withdrawal, payments are then due for a monthly percentage of the amount borrowed as well as interest. Although repayment terms aren’t always the same, one year is a frequently established amount of time. In this case, the $20,000 must be repaid over that time period plus interest. Lines of credit have more flexibility than a small business loan because funds are not disbursed in a lump sum. Also, until you borrow a certain amount, payments are not required.
Similar to credit cards, business lines of credit are considered to be revolving debt. That classification enables the borrower to dip into these funds more than once, as long as he or she has paid back what they originally borrowed.
Lenders’ policies vary, but the ability to withdraw funds from a business line of credit is usually relatively painless and fast. Some lenders with stricter policies in place may require the borrower to reapply for financing each time they draw from the business line of credit, to ensure that their creditworthiness has not changed.
A loan with a fairly short repayment period, a short term loan is one in which the borrower receives his cash in a lump sum up front, then repays the loan, often with some pretty sizable financing rates. Some short term loans allow the borrower to make extra payments to pay it off sooner. However, some short term loans actually come with penalties for early repayment. Short-term loans generally have a term of 12 months or less.
Payments on short-term loans are required frequently — sometimes once a week, or, in some cases, every day.
Although the credit requirements are not as strict for short-term loans as they are for regular term loans, the frequent payment schedule may be burdensome for someone in a new business without a lot of cash flow at that moment. But a businessperson who needs a loan in a hurry still might opt for a short-term loan because it may be easier to secure than other forms of financing.
Although the business credit requirements are not as strict for short-term loans as they are for regular term loans, the frequent payment schedule may be burdensome for someone in a new business without a lot of cash flow at that moment. With fewer requirements than longer-term loans, short-term loans from online lenders may be easier to get approval than some other types of loans.
Choosing to apply for a short-term loan comes with the expectation that you might have to repay it over just a couple of weeks. If you have an installment loan, you have up to six months to pay it off. A short-term loan application is completed online and normally takes a matter of minutes to be approved.
Rapid processing is one of the main attractions of a short-term online loan. Sometimes approval could even come the same day the application is placed. In addition to fast approval, other advantages of short-term online loans for working capital include paying less interest, the chance to improve a bad credit rating, and flexibility.
For companies that have unpaid invoices. Invoice factoring is a financing method where you sell your accounts receivable at a discount for a lump sum cash amount.
A method of securing working capital that is a little different than applying for a loan, invoice factoring is the process of selling invoices at a discounted rate to a factoring company and receiving in return a lump sum of cash that can be used as working capital.
After assessing the risk of financing the business owner’s invoice, the factoring company collects payments from the business’ customers over a span of between one and three months. If a company sells something to a customer, but that customer cannot pay off the invoice right away, there’s a gap of time that could create a shortfall for the business owner. The lump sum that the business would receive by undertaking the process of invoice factoring would cover the shortfall and solve the problem of cash on hand.
The business will sell the invoice to the factoring company at a 3 percent discount, to account for the factoring fee. This method of securing working capital enables a business to work around the obstacle of a slow-paying customer. Some factoring companies will supply the cash needed for working capital in as little as 24 hours.
Some of the drawbacks to invoice financing for business funding include surrendering control, taking on the potential stigma associated with factoring (which some observers could interpret as a sign that one’s business is struggling), and the cost (when factoring companies manage the process of collections and the control of credit, it is more costly and the business’ profit margin takes a hit as a result).
The U.S. Small Business Administration (SBA) offers commercial financing backed by the SBA through its SBA 7(a) loan program. The most common type of SBA loans, an SBA 7(a) loan assists businesses in the purchase or refinance of owner-occupied commercial properties up to $5 million. This loan also gives the business owner a chance to borrow funds for working capital.
These loans are suited to assist businesses that are unable to secure credit anywhere else. With an SBA (7a) loan, the borrower can purchase land or buildings, build on new property or renovate existing property as long as the real estate will be occupied by the owner. Through an SBA (7a) loan, an entrepreneur can borrow up to $5 million through an SBA-affiliated lender. The maximum allowed interest rates for the program are based on the Wall Street Journal Prime Rate plus a margin of a few percentage points. Interest rates can be fixed, variable or a combination of the two. Loan terms for 7(a) loans that are used for commercial real estate may be as long as 25 years for repayment. Each monthly payment would be the same until the loan is fully repaid.
Backed by the U.S. Small Business Administration, this type of financing can assist in the purchase or refinance of an owner-occupied commercial property. These 504 loans actually are a hybrid form of financing: One loan coming from a Certified Development Company (CDC) for up to 40 percent of the loan amount, and one loan from a bank for half the loan amount or greater. Low down payment requirements make CDC/SBA 504 loans ideal for growing companies that might not have more than 10 percent to use as a down payment.
A CDC/504 loan is for either 10 years or 20 years. Borrowers get a fixed rate rather than the prime lending rate. Applicants will be required to show the lender a business plan, exhibit proof that they’re capable of managing a business and present projected cash flow data–all to assure the lender that the loan is likely to be repaid without complications.
Another way to facilitate access to money needed to finance one’s business expenses is a merchant cash advance. In this instance, a company grants the borrower access to cash. The borrower is then required to pay a portion of his or her sales made with credit and debit cards, as well as an additional fee.
A merchant cash advance does not require collateral or a minimum credit score. A merchant cash advance can be an expedient way for a business owner to get his hands on capital when the need for cash becomes extremely pressing. A business owner might be slammed with a bill he or she did not expect, or the owner might need the cash fast in order to consummate a time-sensitive deal that must be decided upon sooner rather than later.
With a merchant cash advance, a business owner can potentially get hold of a large sum of funding in a hurry. The turnaround actually could be realized in as little as 24 to 48 hours in some cases. A merchant cash advance could be for a sum of a few thousand dollars up to as much as $200,000 with a minimal of paperwork. The “heavy lifting” in a merchant cash advance is usually handled virtually.
Repayment of a merchant cash advance is based on the credit card receipts of a business. If the company has had a slow day, the repayment amount for that day is reduced. Funders of merchant cash advances can take 20 percent of credit card receipts on a daily basis. How much a funder takes is tied to a company’s success more than it is to the calendar.
Companies that provide merchant cash advances do not stress credit scores if the borrower comes into the deal burdened with a less than stellar credit history. Lenders instead will make their decisions based on current operations and sales projections. For a business that endured a rough start financially but which still anticipates a rosier financial future, a merchant cash advance might be the best option for a fast business loan.
The ease and expediency of merchant cash advances is not free, however. The factor rate, which is a percentage – often expressed as a decimal ranging from 1.1 to 1.9 – that shows how much extra a borrower owes on a loan, carries a high effective annual percentage rate (APR), and repaying it can be a genuine burden on a company’s cash flow.
Tapping into the combined resources and contributions of friends, customers, family and possibly individual investors by using social media and online platforms set up for this specific purpose is called crowdfunding.
The process of crowdfunding—a financing option that is open to anyone–entails collecting small amounts of capital from a large base of contributors, accessing a sizable potential pool of resources. The business owner who seeks to raise capital through crowdfunding essentially is delegating the process of an application to a large group of people instead of relying on the decision of an individual lender. Crowdfunding sites generate revenue from a percentage of the funds raised.
The advantages of a crowdfunding approach to raising working capital include its broad reach, the ability to present one’s business in a positive light to potential investors, the attention to one’s business derived from public relations and marketing on a crowdfunding platform and efficiency. Crowdfunding helps a business to streamline its fundraising efforts with a single profile that is comprehensive and into which the entrepreneur can funnel all prospects and potential investors. Presenting one’s business to a large audience at one time eliminates the inefficiencies associated with printing documents, putting together binders manually entering every update.
Crowdfunding can be based on donations, rewards or equity. A funding effort that is based on donations comes with the understanding that there is no financial reward to the donor to a crowdfunding campaign. A campaign based on rewards would give something back to the contributor, such as a product or a service provided by the business that is seeking the funding. Equity-based funding campaigns invite contributors to become part-owners of the business by exchanging capital for equity shares. As equity owners, the company’s contributors get back a financial return on their investment as well as receiving a share of the profits in the form of a dividend or distribution.
In addition to the possibilities already covered for achieving financing in a hurry for small businesses, these companies may also consider peer-to-peer loans or micro-loans.
Business owners with good credit who need a small amount of working capital quickly may be able to meet small, short-term working capital needs with a peer-to-peer loan. This type of loan must be repaid with interest in a period of one to five years. If your credit is good enough to command better rates than you’d get with a short-term loan online, but is not quite good enough to qualify for an SBA loan, a peer-to-peer loan might be a suitable choice.
Peer to peer personal loans are offered directly to individuals without the intermediation of a bank or traditional financial institution. Online lending platforms fund borrowers via institutional lending partners.Also referred to as marketplace lending, peer-to-peer (p2p) lending is an increasingly popular alternative to traditional lending. Borrowers and lenders can both benefit from this more-direct lending system.
In p2p lending, one party lends money to a business, with the promise of receiving a sizable return for doing so. When a business seeks a p2p loan, it accesses a website, requests a loan, and then investors are permitted to fund the loan and also share in the interest payments. Rates ranging between 6 percent for the best credit and 25 percent for the lesser credit ratings. A p2p loan could be used for the purchase of inventory or equipment. Peer2Peer loans cap out at about $35,000.
Microloans are small loans that come from individual lenders, not from a bank or a credit union. Microloans can be issued by a single individual or they can be assembled from several lenders each contributing a given amount until the necessary funding total is achieved.
With a microloan, the lender gets interest on the loan and repayment of principal after the loan has reached its full term. Microloans come with interest rates that are above market, so some investors may be attracted by that aspect of them.
At the end of the day, speed is one of the most important factors that business owners should look for when deciding how to get financing for their next project or ongoing operations. If you have a funding provider that can help you get money quickly when you need it, you have an ace up your sleeve. Remember that many different loan options or business financing products will have different requirements attached to them, and some may take longer to get than others. But if you keep the tips we covered in this article in mind, you should be on your way to faster funding so you can get back to business.
