Last Updated on January 2, 2023
Sometimes business crises happen that need to be handled immediately. If you are strapped for business cash, you need to find a solution and quickly! Basically, you have four options at your disposal.
You can choose from short-term funding such as title loans or opt for medium-term loans, which usually have lower interest rates. The shorter the time you use the loan, the higher the interest rate. Below are four types of loans that can keep you going during a business emergency.
1. Emergency Short-Term Funding
If you need short-term funding, such as car title loans or similar financing, these types of loans can help you get by in a crunch. You may just need the loan for a one-off event so you can continue to operate. A short-term loan is similar to a traditional loan except that it is easier to facilitate.
If you take out a traditional loan from a bank, you normally have to wait several weeks for the money. This may not be possible if you run into an emergency repair or need to pay back a client or peer in a hurry.
When you apply for short-term financing such as title loans, you often can get the money the same day that you apply for the loan. You can get the loan more quickly as everything is done online. All you need to do is upload the requested documents on the lender’s platform while submitting the loan application.
If you take out a title loan, you will need to arrange a time to visit the lender at their brick-and-mortar location. Only the title of your car is needed to secure the loan. You can continue to use your vehicle during the loan period.
2. Bank Loans
If you’re willing to wait for approval, a bank loan can sometimes be a great way to acquire emergency funding. Depending on your specific financial situation and flexibility of your bank, a bank loan can sometimes be received almost as quickly as emergency short-term loans. Banks are careful about who they loan money to and typically require security for their loans to ensure payback is guaranteed.
This means they’ll need to see your financial history, the reason for the loan, and your balance sheet for any useable collateral. If you’ve been keeping your accounting statements organized, this shouldn’t be a problem and it would be possible to receive a bank loan within a week. Of course, the amount you receive may not cover what you need so you may need to cover the shortfall with other methods.
3. Invoice Financing
Are your customers not paying their invoices on time? If so, you may consider a funding option such as invoice financing. This is an innovative funding concept as you basically trade some of your revenue for immediate capital. This is how it works: a financing company advances a part of the unpaid customer invoices while holding the remainder in reserve.
Once you receive money from customers, you will receive what is remaining in the reserve minus the lending fees. The loan amount is given to you upfront and covers outstanding invoices. An invoice lender typically takes 15-30% of the invoice amounts as a fee.
As a business owner, it could be beneficial to contact the client directly and offer a 15% or lower discount directly to save on fees and ultimately get more money.
4. A Merchant Cash Advance (MCA)
A merchant cash advance or MCA is yet another loan that you can take out to regenerate your capital. The company that provides the MCA gives you a lump capital sum to cover your business emergency. This loan, the same as the other loans, enables you to stay financially afloat when waiting will not do.
One of the biggest advantages of a merchant cash advance is that they don’t usually require collateral or a certain credit rating.
Requirements for the loan include a minimum amount of sales, length of time in business, and certain business type restrictions (For example, retail-based businesses only instead of eCommerce or home-based businesses). Repayment of the loan depends on the lender but they typically do not have a fixed time period or payback schedule like a typical loan. Instead, you agree to allow the lender to withhold a portion of your daily sales until the loan is repaid.
5. Business Line of Credit
A business line of credit is a great funding source to have for your business. Think of it as a credit card for your business where you can withdraw funds up to a pre-approved amount to cover business expenses. The drawback is that the requirements to receive a line of credit for your business can be somewhat strict.
Many require positive revenue and cash flow for a period of time (Often 1-2 years), a good credit score, a solid business plan, and sometimes collateral. Some banks will even require the owner to have a minimum amount of experience in the industry or even a certain amount of personal investment in the business. If you can meet the strict requirements to get a business line of credit, it can be a great source of funds for business emergencies or opportunities.
6. Equity Financing
Another source of emergency business funds is equity financing. In short, you raise money by offering part ownership of your business. There are many angel investors, venture capitalists, private equity associations, and other networks that are always open to funding businesses in exchange for equity and in short notice.
However, while it is possible to get equity financing in short notice, it’s very difficult to do. Most networks don’t fund just anyone. Be prepared to give a stellar business presentation and answer any questions.
If your business is solid and the potential is there, you don’t just receive financing but support as well including business consultants, marketing, business connections, and much more.