Sometimes in business you need cash fast. Whether you are facing a crisis you hadn’t expected or suddenly your clients’ demand triples within a few days, as a business owner, what are your options to get that cash in hand fast? Online business loans (instead of a traditional bank loan) are going to be your best option. Here are a few options when you need access to working capital quickly:
What is it? Invoice financing is a very easy and fast way to get cash without a credit check or collateral. Often in business there is a time lapse between when you provide a product to a customer and when your invoices are paid. Invoice financing assures that you can collect most of that money immediately, allowing you to have cash in hand quickly. Virtually any business can qualify for invoice financing if they have current outstanding receivables.
How does it work? Invoice financing companies buy your company’s accounts receivables. They can buy either a specific invoice or a set of invoices. The Invoice financing company then gives an immediate advance to you ranging from 50-80% of the amount of the receivable. They hold the rest of the money in reserve and take an “invoice financing fee”. The invoice financing company then collects from your customer. Once they receive payment, they pay you the amount held in reserve less the financing fee of 2% to 6%.
- Quick access to cash
- No need for collateral (invoices take its place)
- No credit check
- Losing a portion of profits to fees
- Higher fees than “traditional” financing
- The longer your client takes to pay you back, the more money you lose
- Less capital available during downturns
Short-Term Working Capital Loan:
What is it? A short-term working capital loan is a loan type that meets immediate financing needs. This type of loan can give you access to funds in as little as 2 days. Almost every business can qualify for this type of loan. The interest rate and maximum amount you can borrow will depend on your business history, credit rating, and business revenues. Typically, a short-term loan has a fixed interest rate and payment period and you need collateral to obtain the loan.
How does it work? You apply for a short-term working capital loan from either an online lender. You usually need some collateral, business or personal assets. The lender will review your business banking records and credit history, though it is still possible to get a loan even without perfect credit. Interest rates typically start at 14% with a variety of payment plans and terms available. Your loan term can be anywhere from 3 to 18 months.
- Quick access to funds
- Limited paperwork required
- Get debt off your books quickly
- Higher interest rates than traditional loans
- Often requires collateral
- Often requires credit checks
What is it? If you need cash for the exclusive purpose of purchasing equipment you can get an equipment loan to finance up to 100% of the value of the equipment you need. The terms depend on the expected life of the asset. Most businesses qualify for equipment financing. The amount for which you qualify and the interest rate depends on the value of the equipment, your credit rating, and your business history. You will not need any collateral as the equipment serves as such.
How does it work? Once you purchase the equipment you make regular payments until you have paid back the loan, which is usually calculated as the expected life of equipment. The equipment serves as collateral to secure your loan. You can use this type of loan to purchase virtually any type of business equipment. You can typically borrow up to 100% of the value of the equipment you need, but this will depend on the type of equipment you are purchasing and whether the equipment is new or used. The fixed interest rate with an equipment loan is typically 8% to 30%. The terms of the loan depend on the expected life and type of equipment. The loan cannot be extended past the life of the equipment.
- Can qualify with bad credit
- Quick cash access
- Limited paperwork
- No collateral—equipment serves as collateral
- Equipment may be obsolete before the loan is fully repaid
- Because equipment depreciates, you cannot deduct the full cost each year
- It may make it harder to apply to other loans as it ties up credit
Merchant Cash Advances:
What is it? A Merchant Cash Advance (MCA) is quick way to get a cash advance for your business without collateral. Rather than a loan, it’s a short-term cash advance which is repaid by future credit card receipts. This type of “loan” is very fast, unsecure, and anyone with credit volume can be approved. Anyone who receives a large portion of revenues through credit card payments can use this financing option.
How does it work? You get a cash advance, approved and funded within 1-2 days typically. You, in turn, agree to pay back the advance plus a fee by authorizing the MCA provider to take a portion of your business’s credit card sales each day until the entire amount has been repaid. You can get a maximum cash advance of $250,000. MCA providers have a “factor fee” which can range from 1.14 to 1.48. This number is multiplied by the advance amount you receive to calculate the total you must pay back.
- Very fast aces to cash
- Little paperwork and easy approval process
- Can qualify with bad credit
- Loan repayment is automatic with set percentage of credit card receipts
- Can be used for almost any business purpose
- Expensive fees—higher than any other loan type
- Reduced cash flow because of daily deduction of credit card receipts
- Little flexibility to change MCA providers
Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. Meredith is also the Senior Financial and B2B Correspondent for AlleyWire.