Emergency Business Loans
No matter how perfect your business plan, no matter how much you try to anticipate problems, your business might run into an emergency. The water heater breaks and floods the stock room, ruining inventory meant to ship out the next day. A huge thunderstorm could damage your roof, forcing you to close your restaurant during repairs. But, even though you have no revenues coming in, creditors are demanding payment.
Disaster and business insurance will cover some of these emergencies, but you might not receive the funds in time to save your business. Or, you could have an immediate deductible that you cannot afford. Exclusion clauses on an insurance policy could prevent you from cashing in.
If you need emergency business loans, you need it in a hurry and Shield Funding can help. We offer emergency business loans for those unexpected events that require immediate action. The process is fast and easy and it takes just a couple of minutes. Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
What Do I Need to Qualify?
Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
What are Emergency Business Loans?
An emergency business loan is one that can be quickly approved and disburse funds in a short amount of time. When a lender gives you capital, they make their profit on the fees and interest they charge. They also protect themselves from risk by charging higher interest rates or requiring interest to be paid up front.
Because a lender giving you an emergency business loan does not have a lot of time to verify your financials and repayment ability, you can expect the following if you take out an emergency business loan;
- Higher interest rates
- More fees
- Possible requirements to pay interest up-front
- Shorter repayment periods
Your cost of capital will be higher than a traditional, fixed-rate business loan, but within the types of emergency business loans you’ll find a wide spread of rates.
Can I Get an Emergency Business Loan from a Bank?
If you need an emergency business loan, you probably cannot afford to wait too long to receive the funds. Banks are not known for their speed during the lending process. They have strict lending requirements and could require several years of tax returns, financial statements, bank statements for a business loan.
By the time you have compiled all the documentation for the loan application that leak in your building’s basement could have become a flood, destroying all your inventory.
If you had time to wait, you would need the following to qualify for a bank loan;
- A credit score above 620.
- Been in business longer than two years.
- Strong monthly and annual cash flows.
Even borrowers with excellent credit will turn to other options to fulfill their emergency funding needs. Banks can take months to approve a small business loan, which simply does not meet the needs of many small businesses. Alternative lenders and other lending options saw the marketplace need and have stepped into the gap. You will be able to get an emergency business loan, but do not waste your time applying at a bank.
Types of Emergency Business Loan
As speed is of the essence when you need an emergency business loan, the product you wind up with is unlikely to take the form of a fixed-rate, term loan, but an alternative form of capital. Because speed is essential if you are in a crisis situation, each of these capital options below bases funding decisions on credit card sales, monthly revenues, or another quickly verified source of income.
Bad Credit Business Loans
Bad credit small business loans, offered by alternative lenders, have extremely quick approval times. Your loan can be approved within 24 hours, and the loan’s funds could be deposited into your bank account within a few days. This makes them an excellent choice as well.
Lenders approve these business loans and the amount they will lend based of annual revenues and your time in business, so as long as you have a credit score above 500 you will not encounter any issues.
If your business generates monthly revenues of $8,000 and above, and you can supply proof of your identity, your odds are quite good that you will be approved. Unless it is an extremely high value loan the lender will not request tax returns or bank statements. Alternative lenders will fund loans between $5,000 to $1 million.
Due to the short approval time, and requiring less documentation, the lender will charge a higher interest rate to cover their risk. Interest rates on bad business credit loans range from 12% to 45%, but are still lower than other funding avenues. If you have a good credit score, the interest rate could be comparable or less than a business credit card or merchant cash advance.
Alternative lenders who offer these loans know that business owners do not operate in a perfect world where they can always anticipate their capital needs. They are an accessible funding source for a business owner who needs a loan in a hurry.
Short Term Business Loans from Alternative Lenders
Short term business loans are repaid over a fixed period of time, no longer than two years, and if it is also a fixed-rate loan you will be able to budget for a set monthly payment. Short-term lenders give out smaller amounts to reduce their risk, but if you only need a few thousand dollars to cover your emergency they could be a good choice.
A faster repayment period minimizes the lender’s risk of non-payment. But condensing paying off both interest and capital into a shorter time period leads to a higher monthly payment. Before taking out a short-term business loan, check your free cash flow and budget to see if you can afford the payments.
Flexible repayment plans are another perk of short-term loans. During the application process, the lender will tell you if they want to receive payments monthly, bi-weekly, weekly, or even daily. Generally, they deduct their payments automatically from your bank account. This is one less thing for you to worry about while getting through your emergency.
Business Credit Cards
Many credit card companies have online applications which can process your application and return an answer in minutes. They will even give you a number and expiration date so you can start using your business credit card immediately. While this might solve your emergency business need, you will pay for this convenience.
Business credit cards have extremely high interest rates. The lowest rate starts at 14.49% and goes all the way up to 26.99%. If you do not have excellent credit you will pay an interest rate at the higher end, far more than many bad credit business loans’ rates.
What is more, if you have a credit score below 690 you might not be approved for a business credit card at all. If you apply at the same lender where you bank, you might have a better chance. But your rate will reflect your risk, and with late fees and increased interest rates if you miss a payment a business credit card could end up hurting your business more than it helps.
Business Lines of Credit
Unless you can wait a week or two, a line of credit will not fulfill your emergency business loan need. But it is a good idea to have one in place for the future.
A business line of credit functions like a credit card in that the line is open and the capital ready to access whenever you need it. You will only have a payment or pay interest if you draw on the line, though you may pay an annual fee to keep it open. Some lenders will also charge a draw fee every time you take out cash.
Lines of credit can remain open indefinitely, or for one plus years. Approval times vary depending on your past relationship with the lender, credit score, and banking history. They may not be an option the first time an emergency strikes, but could save your business if you have one open in the future.
Merchant Cash Advances
It will take longer to be approved for a merchant cash advance than for a bad credit business loan or credit card. A merchant cash advance lends you money on the basis of projected future sales. Therefore, to make a lending decision, the lender will need to see bank or credit card statements that prove how much money you have coming into the business.
The pluses are that your advances will be funded within a short period of time, if approved. There is no long loan application, and often lenders do not check your credit. Your only application details could be supplying them with your business name, address, and some bank statements. All that matters to the lender is the amount of your current cash receipts.
The downside is that the repayment period may be significantly longer than the time you are receiving the benefit of the capital. A general rule of thumb for financial management is that your repayment period should align with the useful period of the capital. But a merchant cash advance is repaid every time you swipe a credit card going forward.
The lender deducts a percentage of these sales that includes both their profit and the capital they lent to you. Rates can start at 15%, lower than a credit card but more than some bad credit business loans, but they frequently rise to triple digits.
Merchant cash advance lenders often build into their contracts a rise in interest rate if it is taking too long for them to be repaid. This makes it difficult for you to calculate the loan’s total cost in advance, or how quickly you will pay off the loan. This also means that you could be repaying the loan after you have exhausted the capital that you received.
If your business’ revenue is primarily generated through a credit card sales this could be a good choice to fill your capital needs. If your customers do not pay their invoices on a daily basis, and pay by cash or check, it is not a good choice for an emergency business loan.
How to Find the Best Emergency Business Loan
If you are in the midst of a true emergency, you will not have time to diligently research and compare your different funding options. But you can still ask a few questions to narrow down your search to the right choice.
Ask about fees and prepayment penalties. If one lender charges significant fees or interest up front (called points), another lender who does not could be a better option. If you could incur a prepayment penalty for paying off the loan early, try to find a lender who does not charge them. While on the surface two lenders may offer you the same rate, those hidden fees and prepayment penalties can quickly differentiate them.
When borrowing under pressure and in a short time frame, it’s best to work with an experienced lender. If the lender has been in business for a while, such as Shield Funding’s ten years, you have a reasonable reassurance that they are legitimate and know how to meet the market’s needs.
Improving your Odds of Being Approved for Emergency Business Loans
Most of the advice given to small business owners on how to improve their chances of being approved for a loan is not applicable in an emergency situation. You do not have time to wait until you have been in business longer, repaired your credit score, or grown revenues to apply.
But, after the emergency has passed, you can learn from it and be better prepared for the next crisis.
Work on Your Credit Score
While not all lenders will check your credit score, a higher score will not hurt if they do, and the next time you need cash in a hurry it could make it easier to access funds.
Making late payments, or missing payments, negatively impact your score. To avoid this, set up auto-pay for all your bills. The amount of debt that you have to service, calculated as your monthly debt service payments divided by your net income, also impacts your credit score. Paying down balances on revolving lines of credit, like credit cards, ups your credit score without you doing anything else.
Read our bad credit repair guide if you’re interested in learning more about how you can repair and improve your credit.
The Final Word on Emergency Business Loans
Emergencies happen, so do not waste time getting upset or angry that you are in this situation. Work to find a solution as quickly as possible to save your business or get it back on track. Act decisively when choosing a loan product and a lender, armed with the information in this article.
You will pay more in interest and fees for capital if taking out an emergency business loan, but try to take out a loan with no prepayment penalties. Once the emergency has passed and business returned to normal you might be able to pay off the loan early, saving you interest and fees.
Alternative lenders fill the gaps left by traditional lenders, who do not have the agility to approve emergency funding. Reach out to Shield Funding today to find out how we can help you solve your business’ problems.