At one time or another, many small to medium-sized companies will need to quickly get money. Whether there is a cash flow challenge or insufficient capital from the start, having access to same day business loans can be a lifeline to a business owner.
What same day business loans are available to business owners? Which financing option is the best fit? The following guide will provide the information needed to make the best decision.
A lack of capital is a common reason for small businesses’ failure. Data from the Bureau of Labor Statistics show 20% of small businesses fail in their first year of operation and 30% in the second. Half of those small businesses fail by year 5, and 70% shut down by year 10.
Why Do You Need a Same Day Business Loan?
There are many reasons why a company might urgently need cash. For example, if a major client is unexpectedly out of the office during a usual payment run, cash flow will be affected. Unbudgeted costs for equipment repairs can happen at any time. And taking advantage of a special promotion on purchases might boost your bottom line, but it could leave you unable to make payroll.
Many business owners don’t have the luxury of high-limit credit cards they can use in an emergency. Whenever your company has a cash flow dip or you need working capital to keep operating, a fast loan can help a business stay afloat.
Where Can You Get a Business Loan in an Instant?
Business owners can get “quick money” from many places. Bank lines of credit are one of the most traditional methods. They usually involve a long application and underwriting process, though, and it can be months before you get the money.
Using personal credit or borrowing money from family or friends are other options, but these arrangements can’t necessarily happen on the same day financing is needed. Getting an instant business loan through a reputable lender might seem impossible, but it isn’t. Alternative lenders offer a range of convenient options for business owners.
Types of Same Day Business Loans
These days, companies specializing in same day business loans exist expressly to help small businesses over rough patches. There are various types of business loans and short-term financing options available.
Accounts Receivable Financing
Clients don’t always pay invoices on time. Consumers can be late with payments, and business clients usually like to pay 30 days or more after receiving an invoice. Maintaining a healthy business cash flow can be a struggle in this situation; while waiting for money to come in, certain expenses can’t be paid on time.
Accounts receivable financing is also known as invoice financing. By giving you a portion of the outstanding amount in advance, this funding helps you keep going until the payments arrive. When the client pays, the rest of the money — minus the lender’s fee — is received. This is a type of alternative business advance, which provides you with funds you don’t have to repay.
Business Line of Credit
Most business owners are familiar with the concept of a business line of credit (LoC), which is a traditional funding method.
Benefits of this type of loan include:
- using only what you need at the time, and
- paying interest only on the amount you draw.
- It’s also a great way to improve your business credit score.
If you have a LoC in place, it works in a similar way to same day business loans by giving you cash on the spot. As you pay it down, the line of credit builds up again. Companies in existence for less than 2 years might get only a short-term LoC through a bank. The main disadvantage of an LoC is that you might need to provide collateral, especially if your business is new. You’ll also pay higher interest rates if your credit score is less than perfect.
A business term loan is a typical traditional funding option with a payment period of 1 to 5 years. Short-term loans usually require repayment within 18 months, paid in weekly or monthly installments that include interest. Most of these loans come from banks, but companies — such as Fast Capital 360 — that specialize in small business loans also offer them.
If you’ve been in business a year or more and have a reasonable credit score, you’ll likely qualify for a term loan. It can take several days to get this type of funding through a bank, so if you want a fast business loan you’ll need to find a lender who offers quicker response times. Companies like Kabbage, OnDeck Capital and PayPal’s LoanBuilder all offer short-term loans in one day or less.
Imagine receiving your biggest order ever and a critical piece of equipment suddenly dies on you. Getting a loan with instant approval can save your business from that bind. Equipment financing allows you to buy the machinery, vehicles, medical technology or tools you need to deliver on your promises. You won’t need collateral because the equipment itself secures the loan. This means even with a less-than-perfect credit score, there’s a high chance of qualifying.
While this kind of financing isn’t strictly a same day business loan, it usually doesn’t take more than a few days to get a response and arrange the funds.
Merchant Cash Advance (MCA)
Many alternative lenders offer lump-sum advances to companies known as merchant cash advances. The loan amount is based on a percentage of the business’s daily transactions. You don’t need a good credit score to qualify, but need to have been in business for at least 5 months and meet the lender’s annual revenue requirements.
The MCA is an easy way to get an instant business loan, but it’s also one of the most expensive options. Businesses using an MCA usually pay back between 20% and 40% of the amount borrowed as a factor rate. For example, if you borrow $10,000 at a factor rate of 30%, you’ll need to repay $13,000. This is higher than most other short-term loan interest rates. The payments are automatically deducted from your revenue, which can also impact your cash flow.
The Small Business Administration (SBA) has had the back of entrepreneurs for many years. By guaranteeing loans from participating lenders up to 85%, the SBA reduces the risk to the lender. This makes lenders more open to giving loans to new companies without collateral or established revenue streams. While standard SBA loans take several weeks to finalize, the SBA Express Loan option gives you money in 15 to 30 days. These loans don’t have the advantages of same day business loans, but they are good for planned projects and expanding your operations.
Working Capital Loans
These loans are bridging options used to cover regular operational expenses like rent, payroll and utility bills. They are usually smaller loan amounts and you won’t need to provide collateral, but will have to pay them back over a year to 18 months. You can usually get a working capital loan fairly quickly, especially if you’ve had one before and paid it back on time.
Pros and Cons
Same day business loans give you the benefit of being available at short notice. In many instances, however, this only works if you have the foresight to have all of your documentation at the ready. Some lenders can provide instant business loan approval if that is in place, but each one has its own eligibility criteria.
Merchant cash advances and short-term working capital loans are usually the fastest to obtain, but most require a credit score of 500 or higher.
If you need small business funding fast, you’re more likely to get it from alternative lenders than from your regular bank. Online and alternative lenders offer a range of business financing options that you can quickly and conveniently apply for and almost immediately get a provisional answer. Compare this with the average of 25 hours required for a traditional loan, according to a study by Harvard Business School. That’s without taking into account the time you’ll wait to hear back from them.