At times you may feel like your business is moving at the speed of light (more than 186,000 miles per second). Business loans, on the other hand, have been a different story. Many a business owner can share memories of completing mountains of paperwork and then waiting months for approval on a traditional bank loan.
Today’s business loan environment is different. With technology, less paperwork, and fewer government regulations, there are now more options than ever for businesses that need additional capital quickly. Maybe not at the speed of light – yet – but much faster than in the past.
But before you make a jump for the fastest cash you can get your hands on, it’s important to realize that not all small business loans are created equal. Each loan can serve a different financing purpose, will require a different application process, and may include different costs. If you want to move quickly on a small business loan, check out these options to find the best fit for your needs.
In a pinch for extra cash? These 4 loan options provide the fastest access to capital
1. Short-Term Loans
With a short-term loan, you can borrow from $2,500 to $250,000 in as fast as two days. Just like a traditional loan, short term loans are straightforward—a lender gives you a set amount of funds upfront, and you agree to pay it back with fees and interest in a set amount of time.
Your repayment period is short, and you can make payments on a daily or weekly schedule, according to your loan terms. Keep in mind, however, that these loans can get quite expensive, so make sure you know how much it is going to cost before you sign on the dotted line.
2. Equipment Financing
If access to an expensive piece of equipment is what’s holding your business back from growth, an equipment loan may be your perfect solution.
The difference between a term loan and equipment financing is that equipment financing is an asset-based loan. This means that the lender relies on the value of the new asset you’re buying to determine your creditworthiness since the asset doubles as collateral.
The amount you can borrow will depend on the type of equipment you plan to buy, whether it’s new or used, and its expected lifespan. Equipment financing loans can be approved in as little as two days, and they often finance the full amount of the equipment.
In general, you can find equipment financing at a fixed rate between 8% and 30%.
3. Invoice Financing
If your business contends with slow-paying customers, you may need additional capital to make payroll, pay bills, or manage your finances. In these circumstances, invoice financing is a solution for fast access to the money you need in as little as one day.
Invoice financing—also sometimes called accounts receivable financing—is very similar to equipment financing in that it uses your existing assets—in this case, your outstanding invoices—as collateral. An invoice financing company will advance around 85% of your outstanding invoices, and provide you with cash right away.
Then, as your customers pay their invoices, you’ll receive the remaining ~15% back, minus the fees charged by the lender. These charges include a processing fee of, say, 3%, plus a factor fee, which typically equates to approximately 1% each week until your customers pay in full.
4. Merchant Cash Advance
Merchant cash advances can be a low barrier option if you have low or no credit or don’t qualify for other loan programs for other reasons, but you need to access capital quickly. With this option, you can have approval and funding in as little as two days with minimal paperwork.
Technically, with a merchant cash advance, a lender will give you a lump sum loan based on your monthly revenue. You pay back the advance, plus fees, with a percentage of your company’s daily sales via credit and debit cards.
Although this program is fast and easy to qualify for, it is the most expensive, so proceed with caution. The upside is that you’re not hit hard when you have slower weeks or months since your payback is a set percentage of sales.
Thinking long-term will help you save
Each of these options offers business owners the ability to acquire additional financing in as little as a day or two, which can help you keep your business financials smooth and your growth potential strong. However, it’s important to realize that fast cash is expensive cash. If you can save yourself from needing to find financing in a few days time, you might be able to find a more affordable option for your business.
Last minute quests for working capital are a symptom of the erratic, unpredictable nature of startups. But early-stage business don’t have to accept this turbulence as the norm, when they follow a few basic budgeting tools and best practices.
By capturing transactional data on a general ledger, business owners can determine their burn rate and cash runway (inDinero users can find these key performance indicators right on their dashboard!). This will give them foresight to get ahead of gaps in their cash flow and create a survival plan that doesn’t involve high interest lending in the eleventh hour.