5 Great Options for Obtaining a Quick Small Business Loan
March 26, 2019 | Last Updated on: July 18, 2022
March 26, 2019 | Last Updated on: July 18, 2022
One of the main issues small businesses face is cash flow. Many times, businesses that have a healthy client base and ongoing projects can go bankrupt on account of cash flow problems and their inability to meet financial obligations like paying employees and buying materials.
These issues can stem from a number of factors, such as unforeseen expenses, and slow or delayed client payments. Just because you have contracts for work totaling $75,000 does not mean your business has $75,000. In fact, according to a survey of bankers by Sageworks, a financial information company, almost 17% of banking professionals surveyed said that most small businesses are looking to free up capital that is tied to outstanding accounts receivable, also known as invoices.
Quick small business loans and other types of financing can help address issues like these. They can also help businesses capitalize on a time sensitive opportunity, such as buying a prime piece of real-estate that would be a perfect location for their business. In this post, we’ll discuss five great ways you can obtain a quick small business loan so that you can provide your business with fast working capital in times of need.
Working capital loans are a great way to access fast funds for operating expenses. They’re also great for acting on business opportunities that you otherwise would not have the capital to act on.
Working capital loans are usually for amounts between $2,500 and $250,000, with a term of 3 to 18 months. Interest rates tend to be higher than that of regular loans, however, that is on account of the speed in which working capital loans can be acquired. They can usually be acquired with very little paperwork in as little as only 48 hours.
Another positive of working capital loans is that many times they do not require a good credit rating, with opportunities to offer additional collateral to secure the loan and protect the lender against default.
The difference between a loan and line of credit all comes down to how borrowers access the money they are borrowing. Loans are given in lump sums and are usually amortized, meaning that you repay them in a series of equal payments. Lines of credit on the other hand are revolving accounts, meaning that you can borrow money, then repay that money with interest, and then borrow the money again.
Setting up a line of credit is a great option because your business will have immediate access to funds, and you can take out what you need at the time and always go back for more, assuming you have reached the limit, if you need it. You won’t have to reapply for another loan if you need to access more funds for any reason. This protects your business from paying interest on money that you didn’t need to borrow in the first place.
One of the downsides of a line of credit is that a lender can reduce or close the line at any time, which can impact your ability to withdraw funds in a time of need. You’ll also have to pay a maintenance fee for the whole time you have the line of credit open with that lender.
Equipment financing is a great route for accessing expedient funds to buy or lease equipment your business needs, and they can even be acquired through online vendors. One of the nice things about these loans is that the equipment you purchase with them can usually serve as the collateral for the loan itself. While some lenders may want more guarantees, you can find ones who don’t require as much.
These loans can cover all sorts of equipment, such as heavy industrial machines or medical equipment, and repayment schedules can be set to lengths equaling the expected life of the machines themselves.
It is important to note that you may need to be able to cover a down payment, with the loan covering the remaining 80 to 90 percent of the cost.
One of the main causes of cash flow troubles for small businesses is slow client payment. In many cases, businesses will have many valuable outstanding invoices for completed work, but little cash flow because they are still waiting for clients to pay. One way to get around this is through invoice factoring.
Invoice factoring is when a business sells outstanding accounts receivable, also known as invoices, to a third-party. They’ll then pay the business around 85 to 95 percent of the value of the invoice. After this, they’ll wait for the client to pay the invoice, taking a percentage of the remaining value, known as the factoring fee, for every day or week the client takes to pay the invoice. Once the client pays, they’ll take their fee and send you the rest.
There are a number of different options for invoice factoring. There are two broad types: recourse and non-recourse factoring. In recourse factoring you are responsible should your client fail to pay the invoice. In non-recourse factoring the factoring company is responsible for the client’s failure to pay unless the invoice is disputed by the client. However, non-recourse factoring can have a lot of different fine details, so it is important you understand exactly what you are liable before agreeing to invoice factoring.
There is also spot factoring and contract factoring. Spot factoring is where you get to pick and choose contracts you sell to third-party groups, whereas contract factoring is where you agree to sell all or a number of your invoices to a third-party group. The benefit of spot factoring is that you have the ability to pick and choose, and the benefit of contract factoring is that they usually have lower percentage factoring fees.
Invoice factoring is a great resource for a number of reasons, especially because it removes the risks of being unable or struggling to pay back interest-heavy loans.
Personal loans are typically able to be processed faster than business loans. They’re also a great option for individuals with relatively new businesses and high individual credit scores, as it will be much easier for them to take out a loan than their business.
Personal loans can be approved in as little as 24 hours, making them faster than many of the other options detailed so far. They also tend to require less fees and less paperwork, since you won’t have to provide business tax returns, profits and loss information, or a business plan.
That said, personal loans can be a huge risk. Mixing together business and personal liabilities can become very complicated and very damaging if you find yourself unable to meet the financial demands of the loan. They also generally don’t provide the same amount of capital that a business loan would offer, making it less than ideal for larger needs. As a result, personal loans are usually loans you want to consider as a last resort for your business rather than a first option.
Overall, there are a number of ways to get quick funds to your business. With the proper amount of research and consideration, you can make sure you choose an option that meets the specific needs of your individual business so that you can obtain the necessary cash flow to keep your business running or capitalize on otherwise out-of-reach opportunities.