When to consider a fast business loan

An emergency, limited-time growth opportunity or other unforeseen business expense can create an urgent need for working capital. Most business loans take weeks to months to be approved and funded, but with fast business loans — typically available through online lenders — you can get the cash you need in less than five days.

In exchange for faster funding, you’ll often pay high interest, so it may not be a good fit for all situations.

When to consider a fast business loan

Quick funding is the main draw of fast business loans. A situation may arise where you need cash immediately, and waiting a week or more for a loan to be approved may not be an option.

1. Business is in danger of closing

Rent, utilities, payroll and other business expenses add up, and revenue doesn’t always keep pace. You need money to afford your fixed expenses to keep the doors open and give your circumstances a chance to improve. A fast business loan could buy time for business revenue to increase.

2. Limited-time growth opportunity

If the chance to expand your business unexpectedly presents itself, you don’t want to miss out. You might want to take advantage of discounted professional marketing services or buy a new office space in an area of town you love.

3. Unexpected expenses

Business operation costs can be unpredictable. Small businesses often run into various unforeseen expenses, such as increased utilities or supplier costs or equipment breakdowns. You may need to address these costs immediately to avoid impacting daily business operations. If you don’t have cash on hand, a fast loan could save the day.

4. Not eligible for other types of business financing

Lending criteria for traditional business loans may not be as accommodating as what you’ll find for fast business loans, which are often offered by alternative lenders. Since credit score, time in operation and annual revenue are major factors that impact approval, anyone with bad credit or just starting a business may not be eligible to secure a traditional business loan.

Alternatives to fast business loans

A fast business loan may make sense in some instances, but don’t rush to sign up for a potentially expensive option. You want to take the time to consider your circumstances and the pros and cons of fast business loans. A fast loan may not be a good fit if:

• Your need for capital is not urgent.
• You need access to a higher loan amount than what a fast loan can provide.
• You qualify for other types of business financing, such as a business line of credit or business credit card.

If a fast business loan doesn’t fit your business’s needs, here are some alternatives to consider:

• Traditional small business loans: Traditional business loans vary from fast loans in approval and funding methods. They offer larger limits and flexible repayment but may have stricter eligibility.
• SBA loans: The SBA Express loan has a max loan amount of $500,000, and offers an accelerated process that guarantees the review of loan applications within 36 hours. However, funding takes additional time. If you don’t need immediate cash, consider SBA 7(a) loans, Community Advantage loans or 504 loans.
• Bootstrapping: Ideally your business income would cover your business expenses, but if that isn’t an option, you can use personal savings until you see an increase in revenue that is enough to fully support the business.
• Business grants: Business grants provide small businesses funds without needing repayment. The application process is highly competitive, and eligibility requirements can be specific, focusing on industry, demographics or location.
• Crowdfunding: Crowdfunding presents diverse options for fundraising for working capital or a business-related project. You can choose between four different types of crowdfunding — donation, reward, equity or debt — and depending on the option you choose, repayment is not required.
• Peer-to-peer lending: This financing option involves borrowing from individuals rather than a bank or other financial institutions. While it’s easier to qualify for, fees may be higher than other traditional business loans.
• Microloans: This specific type of loan is ideal for younger businesses needing less than $100,000. The SBA offers microloans up to $50,000.
• Business credit cards: These work similarly to personal credit cards but are designed specifically for business purchases. You can build credit and cover short-term expenses while avoiding interest charges if you take advantage of the card’s grace period. The credit limit may be lower than a business line of credit, but businesses often get perks and bonuses for using their cards. Note that with this option, a personal guarantee from the business owner may be required.
• Business lines of credit: Gives business owners up to a certain amount of credit to draw from to cover various business expenses. Similar to a credit card, a line of credit only requires interest to be paid on the amount borrowed, but there may also be fees, including a draw fee and maintenance fee.

The bottom line

When you need immediate access to working capital, a fast loan may be the answer. You can get cash in your hands in less than five days, but you still want to consider the benefits and drawbacks before applying for a fast business loan. Other financing options might be a better fit for your situation.

Frequently asked questions

• How fast can you receive a business loan?

  Most business loans are approved within 30 to 90 days, but fast business loan lenders can approve a loan in as little as 24 hours. Additionally, fast business loan funds are often dispersed within one to five business days.

• What should you consider when taking out a business loan?

  When taking out a business loan, you should consider the amount you need, what you intend to use it for, and most importantly, how much you can afford to pay back, including the interest that will accrue over the course of the loan.
  

• When would a business need a short-term business loan?

  Businesses use short-term business loans to cover a gap in cash flow, support an expansion in operations, address an unexpected emergency expense and purchase products, among other purposes.