I won’t list off all the reasons you may be in need of immediate business financing. There are plenty. There are also plenty of risks to avoid when searching for immediate financing. Typically, your cost of financing will increase for faster approvals. You see this with an online loan versus a bank loan, yet many banks are not lending to small businesses currently. This puts you in a position where you have to choose from alternative financing options. Some are good. Some are not so good, and most are fast. So here is your guide to immediate business financing.
What are fast funding options for my small business?
- Term Loan
- Online Loan
- Merchant Cash Advance
- Invoice Factoring
- Business Credit Card
Term loans, online loans, MCA loans, invoice factoring, and business credit cards are all ways you can fund your business quickly. A credit card is smart due to the flexibility it offers. You have a credit limit and are not obligated to pay interest on funds you don’t use. Invoice factoring is another flexible option that improves cash flow, but there are also no repayments to make or debt on the balance sheet. MCA loans are not technically loans as they are a lump sum of money that is repaid through typically daily or weekly withdrawals from your bank account. This option is one of the fastest and easiest to obtain but comes at an enormous price. Online loans are faster than bank loans, but they do require higher approval standards and you pay for the speed of the loan with the attached interest rate. Short term loans are also typically faster to receive, but they will be more expensive and offer less funding than a multi-year longer term loan.
Which Funding Option is Best for Your Business?
Ultimately there are pros and cons to each of these options. If you are working on building your business credit in order to qualify for a small business loan from an SBA approved lender, you will want to focus on improving your cash flow. Some of these options will improve your cash flow as a side effect of their funding.
Invoice factoring is centered around improving a business’s cash flow. There are no repayments, and eliminating the waiting period between making a sale and collecting the invoice amount means a business will have the cash on hand to make payments to suppliers early or on time. Invoice factoring approvals can be made in as little as 24 hours, and approval decisions rely on your customers’ credit rather than your own personal or business credit. Money is in your account the same day you complete a sale transaction with your customer.
Merchant Cash Advance
An MCA loan, on the other hand, requires daily or weekly repayments at high interest rates. This will hurt cash flow, but some businesses choose this option for the speed and lower approval standards. This option is especially enticing because money will hit your account almost instantly. It can help if you are in a short term pinch, but these can lead to stacked MCAs and a debt spiral.
Credit cards provide flexibility and the option of cash back on purchases, but the interest rates on credit cards are high. It is recommended to pay off your credit card each month so as to avoid interest. The second shortcoming of business credit cards is the amount of funding available. This will not be a primary source of business funding, but it can make a solid supplementary funding tool. Another benefit of a business credit card though is the simplicity in how it works and the short waiting period from application to access to funds.
Short Term Loans or Online Loans
Term loans and online loans can be faster to get than a bank loan. Also, online loans gained popularity following the Great Recession when banks were not lending money to small businesses. Unfortunately, online lenders use an algorithm to determine the credit-worthiness of a business, and this method of underwriting is being tested by both a recession and pandemic. Approvals are harder to come by than other fast business funding options, but these will be less expensive than an MCA.
What is the Best Option for Immediate Business Financing?
There is no one best option when it comes to finding the right financing for your business. Ultimately, different businesses have different needs. A universal need, however, is strong cash flow. Any factoring company will tell you that you need to focus on improving your cash flow when it comes to business financing. Any small business owner will tell you that cash flow is one of the biggest challenges to running a business. If you have the time to shop around, then find the best deal for you. Be sure to find a financing partner that emphasizes customer service, flexibility, and transparency in their services. We have a whole article on choosing the right factoring company, but really this applies to all financing companies.