Emergency Loans for Small Business: Your 3 Best Options

If you’re in need of a fast turn-around small business loan, you might be tempted to apply for a conventional bank loan or an SBA loan, since eligible borrowers can get high loan amounts at low interest rates. But the timeline for SBA loan approval and funding can take a while on these loans—around a month to 45 days, in some cases—and, depending on the type of loan you’re going for, your allowed use of funds will be limited.

But if you’re looking for a quick loan, you need that money fast. And you need to use that money for, well, a very specific purpose. The three loans below—short-term loans, business lines of credit, and invoice financing—can give you access to cash quickly, and there are no restrictions on how you can use that capital.

(Keep in mind that every lender is different, so these stats are really meant to serve as ballpark figures to guide you to approval.)  

1. Best Emergency Loan for Newer Businesses: Invoice Financing

If you’re a B2B business waiting on a batch of outstanding invoices, then invoice financing could be the best way for you to reclaim that missing cash and cover employee wages.

Here’s how it works: A lender advances you cash, typically in the amount of 75-85% of the value of your outstanding invoices. The lender holds off on the remaining amount until your customer pays you back, and, in the meantime, they’ll charge fees on that percentage.

Because of those fees, invoice financing can become expensive. But the great thing is that borrowers often have an easier time gaining approval for invoice financing than they do for other types of loans.

This may seem obvious, but invoice financing companies are really concerned with the value of your invoices. In turn, they’re a little less concerned with your business’s financial history and credit score—after all, in this case, it’s not contingent upon you to repay your loan. All the onus is on the customer. So, invoice factoring companies are a little easier on potential borrowers during the underwriting process. If you’re a newer business with a shorter credit history or lower credit score—which lenders in other types of loan deals may view as a red flag—you’ll have a shot at being approved for an invoice financing loan, so long as they deem your invoices valuable.

And if you are approved for invoice financing, you can access that cash in as little as under one day.         

What you’ll generally want to have to apply:

1. Time in business: 6+ months

2. Credit score: n/a

3. Annual revenue: $50,000+

On average, most approved customers have:

1. 1+ year in business

2. 600 credit score

3. More than $130,000 in annual revenue

2. Best Quick-to-Fund Loan: Short-Term Loan

You might have to deal with an unforeseen emergency, or an avalanche of invoices. This is why short-term loans are a great tool for small businesses. Granted, these loans aren’t the cheapest, but if you’re in a tough situation, they can be a good choice.

Online lenders can approve eligible short-term loan borrowers quickly, and get them the financing they need. You can have cash in hand in literally a day in some instances. The repayment periods on these loans are often less than a year, which is one of the reasons they’re ideal for quick-fix situations—like making sure your staff gets paid.

What you’ll generally want to have to apply:

1. Time in business: 6 months+

2. Credit score: 550+

3. Annual revenue: $100,000+

On average, most approved customers have:

1. 2+ years in business

2. 600 credit score

3. More than $150,000 in annual revenue

3. Best Long-Term Loan: Business Line of Credit

Although a line of credit’s application process isn’t as fast as the first two options, it’s a great option to have in place ahead of time in case of an emergency. Also unlike a short-term loan, whose terms typically run only up to a year or so, business lines of credit are revolving: You can use these funds whenever you want or need, and you’ll only pay interest on the money you actually use. Then, you can renew your line of credit once you’ve paid down what you’ve spent.

Because of their flexibility, business lines of credit are ideal financing solutions for most businesses to have available, regardless of their financial concerns. After you’ve solved your cashflow issue, you can use your line of credit to replenish inventory, fill in cash-flow gaps, invest in new marketing materials… or pretty much any other working capital expense, as long as it’s within range of your assigned loan amount, and you’re certain you can pay your loan bills. 

  What you’ll generally want to have to apply:

1. Time in business: 2+ year

2. Credit score: 550+

3. Annual revenue: $100,000+

On average, most approved customers have:

1. 2+ year in business

2. 630 credit score

3. More than $180,000 in annual revenue

Of course, the best option for your business may be a combination of the of the above options or quite frankly none of the above. To customize a plan for your business call or text us at 619-200-0351 for a complimentary 30 minute consultation. 

UPDATE: MONEY Magazine asked for our opinion and input on an excellent article entitled "Best Small Business Loans of 2020." We were honored to contribute. The article can be found here: https://money.com/best-small-business-loans/