If you're looking for financing to help fund your small business, there are many types of loans that you can use. However, most conventional loans can take weeks to get and require lots of paperwork and complex underwriting. If you need to meet short-term or emergency funding needs, there are loans that you can secure more quickly. Business lines of credit, invoice financing and equipment financing are a few types of funding that are faster and easier to get, but they can also come with higher costs.
Fast business loan options
|Business line of credit||Loans are revolving, and you only pay interest on what you borrow.|
|Invoice financing||Borrowing terms are flexible, and lenders sometimes take responsibility for collections.|
|Equipment financing||Loans are fully collateralized, and you can get approved quickly.|
|Personal loan for business||Underwriting is fast and easy, and it doesn't consider a business's finances.|
|Small business credit card||Applying is quick and easy, and you can earn rewards for everyday purchases.|
Business line of credit
A business line of credit is a revolving credit facility that functions much like a home equity line of credit or other revolving credit line. Businesses that apply can get approved to borrow up to a certain amount of money, and then borrow money against their line as they need it. Once you draw against your line, you pay interest monthly, but only on the amount you've borrowed. Then, you repay what you've borrowed when you can. Once you repay all or part of what you borrowed, you can borrow those funds again.
The revolving nature of lines of credit makes them ideal for business owners who need funds intermittently or just for a short time. These loans can also be helpful if you need to stock up on inventory or smooth out cash flow that fluctuates seasonally.
While BLOCs can be great for some business owners, they also have drawbacks. For example, LOCs aren't always the easiest to get, and those that you can get fast may have higher interest. Business lines of credit are also issued for a set period of time – when they expire, you need to repay everything that you've borrowed against your line, get your line renewed, or convert any outstanding balance to a structured loan and start making regular monthly payments.
So, while lines of credit can be great for short-term financing needs, they're not usually a good option if you need financing for a longer term or a large project. In those cases, a conventional term loan may be better.
If your business regularly invoices clients, you may be able to borrow against the value of your outstanding invoices. There are actually two ways to do this – conventional invoice financing and factoring.
Invoice financing involves taking a loan secured by an outstanding invoice, which you then repay over time – usually when the client pays your invoice. Factoring, on the other hand, is essentially selling an outstanding invoice to a factoring company, which advances you a portion of the value of the invoice. The factoring company then takes responsibility for collecting from your client, and when the client pays, it releases any additional funds to you (if there are any left over after fees and interest charges).
Invoice financing can be expensive when fees and interest are considered on an annual basis, so it's best to avoid if you need financing for longer than 30 to 60 days. If you need to meet short-term financing needs – like making payroll or staffing up for a new client project – then invoice financing can be a great option.
Of all the fast business loans available, equipment financing is the most straightforward. It's almost like getting a loan when you buy a new car, except with different rates and terms. With this type of financing, you borrow against a piece of equipment – usually one that you're in the process of buying.
Equipment financing functions much like a conventional term loan: You take the loan when you buy the equipment, and then make regular monthly payments of principal and interest until it's paid off. This makes it ideal when you need new equipment for your business and don't want to wait long for approvals.
This type of financing is best for companies that need lots of equipment or new machinery to expand or complete new projects – especially if they've exhausted other financing options or just want to secure financing fast. However, it can really only be used to finance equipment; it doesn't work for other business expenses. If you really need financing to help you meet payroll, for example, you'll need to look elsewhere.
Personal loan for business
A personal loan for business isn't really a business loan. Instead, it's a loan made personally to a business owner – the same kind of loan that you'd use to consolidate student loans or redo your kitchen. The only difference in this case is that you use the money to meet your business funding needs.
Personal loans are usually only an option for business owners with strong personal credit, since underwriting will be based on their personal income and credit report. These loans also require personal guarantees, so business owners who default will be held personally liable.
Still, personal loans may be the only option for some small business loans – especially those who need to apply and get their money quickly. Business finances usually aren't part of the underwriting process, so borrowers with personal credit strong enough to qualify can usually get an approval decision in just a day or two. Personal loans are also often the only option for startups, which may not meet the minimum time in business required to qualify for other types of business financing.
Business credit card
Small business credit cards are just like personal credit cards – they're usually even underwritten based on the business owners' personal credit – except that they're designed for business spending rather than personal expenses.
There are dozens of small business credit cards available. Some offer long 0% introductory APR periods, while others offer cash back or travel rewards that can vary by spending category. Many of these cards offer rewards for spending on travel, office supplies, or phone and internet service, to name just a few.
Business credit cards are good financing to help cover supplies and monthly operating costs like phone and internet. However, because these cards are typically underwritten based on a business owner's personal credit and require a personal credit check, it will hurt your personal credit if you default.
Business credit cards can also be expensive if you have to pay off big purchases over time. In this case, it's usually better to finance big purchases or projects with a line of credit or term loan.
The pros and cons of fast business financing
- Underwriting is quick and easy. Applicants can usually get a decision within a day or two and get their money in just a few days.
- Repayment terms are flexible. The various options give business owners the option of everything from long 0% introductory periods with business credit cards to interest-only payments with lines of credit.
- These options are available online. Most of these types of funding can be secured online without ever visiting an office or meeting with a loan officer.
- They have lenient credit requirements. Whereas most banks restrict business lending to their best banking customers, faster funding options are usually available to borrowers with slightly worse credit.
- The rates may be higher. While fast business financing can get you money within a few days, this speed comes with a price. The rates are often several points higher than conventional term loans' rates.
- It typically requires a personal guarantee. If you apply for quick business financing, you'll probably be expected to guarantee the loan personally in case the business defaults.
- It may have extra fees and costs. Many online lenders that offer fast business financing have added fees because they get so many funding requests.
- Uses of funds are sometimes limited. Many lenders restrict the industries they'll lend into, and, in some cases, certain types of financing can only be used for specific purposes (e.g., equipment financing).
- Loan-to-value ratios may be lower. If you have strong credit and an established relationship with a bank, you may be able to borrow more relative to your income or the value of the asset you're financing – but financing also usually takes longer to secure.
If you need funding fast for your small business, there aren't a lot of options. Most loans take weeks for you to complete an application and get a funding decision – and then you have origination fees and other costs to worry about. All the while, your business is starved for cash. If you need cash quickly, consider one of the options above to help get your business the funding it needs.