Types of Emergency Business Loans
Emergency business loans can be structured in different ways. The right option for you will depend on a range of factors, such as why you need finance, how quickly you need it and your business qualifications.
Business Term Loans
Business term loans are available from traditional and online lenders. Banks and credit unions can usually offer loans with the lowest rates and longest repayment terms, but they are not always the most suitable option for emergency financing.
Online lenders generally have simple, streamlined application processes and more flexible qualification requirements. As a result, online emergency business loans will have shorter repayment terms and higher interest rates.
In some cases, you might be willing to pay a little more for faster access to the funds you need. However, you still need to make sure that you don’t take on high-interest debt that would make it more difficult to take over your business in the long run.
Lines of business credit
Like term loans, commercial lines of credit are available from traditional and online lenders. Banks generally have the lowest interest rates on lines of credit, but online lenders can offer quick funding and flexible eligibility criteria.
Commercial lines of credit may have lower maximum funding amounts than term loans, but they often have renewable terms. That means you can keep pulling the line as long as you make your payments on time and don’t go over your credit limit.
Invoice factoring can help business owners who need emergency financing by giving them access to capital tied up in unpaid invoices.
Cash Advances to Merchants
Merchant cash advances are usually quick to fund – sometimes as fast as 24 hours – and easy to obtain. Many MCA providers can work with startups and businesses with bad credit and require minimal documentation during the application process.
As a general rule, you should consider all other loan options before a merchant cash advance, especially if your business is already trying to deal with an emergency.
SBA Disaster Loans
The federal government offers emergency business loans through the US Small Business Administration. The SBA disaster loan program includes four types of loans to accommodate different scenarios:
Real estate and personal loans. Replace or repair your home or personal property after a disaster.
Physical disaster business loans. Replace or repair company assets, such as machinery, equipment, facilities or inventory, after a disaster.
Economic Disaster Loans. Help businesses meet financial obligations and operating expenses that they would typically incur in the absence of a disaster.
Injury loans to military reservists. Helping businesses with operating expenses because an essential employee has been called to active duty.
If you can qualify, these government emergency business loans offer low interest rates and long repayment terms. You can apply online through the SBA website, but keep in mind that the process takes several weeks.
How to apply for an emergency business loan
Assess your financing needs
If your business has been through a crisis or needs funding to deal with an emergency, you will want to take more time to understand your financial situation. You should think about how much financing you need, how much debt you can afford, and what type of loan would be best for your situation.
It can also be helpful to write a plan that details exactly how you plan to use your capital – that way you know how those funds will help you meet your immediate needs and how your business can continue in the future.
Check your qualifications
Research and compare lenders
When looking for emergency business loans, you should compare several lenders to find the one that best suits your needs. You will need to consider factors such as interest rates, repayment terms, loan amounts, speed of funding, application process and reputation.
You should also be wary of lenders who push the speed of their process without transparency or guaranteeing approval. These may be predatory lenders trying to take advantage of your need for emergency funds.
It can be helpful to read online lender reviews or talk to past customers to check a lender’s reputation.
Complete and submit your application
Your application process will vary depending on the lender you choose. If you opt for an online lender, however, the process should be fairly simple.
You will complete a simple application and provide basic documentation, such as:
Business and personal bank statements.
Corporate and personal tax returns.
Business financial statements.