A quick guide to emergency business loans

November 3, 2016 Carl Faulds

Emergency business loan

Even the best-run businesses can be blindsided by a sudden cash flow crisis. If this happens to you, then you will need money fast – not when a bank has completed its application process, not in a week’s time, but right now. But what are your options?

Merchant cash advances

Take out a merchant cash advance (MCA) and you’ll be able to access the finance you need very quickly, with repayment being made via an agreed percentage of your credit card sales. However, a word of warning: this is generally a very expensive form of finance. An APR of 70%, which may seem astronomical, would be entirely reasonable for an MCA, with some providers charging anything up to 350%. This sum, on top of the capital to be repaid, could significantly damage your cash flow further down the line – and might even necessitate taking out further emergency finance.

Short-term loans

A short-term loan can be an effective solution when you need money fast to deal with a one-off problem. As its name suggests, this type of loan is designed to be paid quickly – within anything from about three to 24 months. In many cases, repayments will be made daily rather than monthly, as with traditional loans.

In general, short-term lenders have a more streamlined application process than banks, using online technology to deal with paperwork and an automatic algorithm to make decisions and set loan terms. Best of all, they are usually much more flexible than banks, significantly increasing your chances of acceptance.

Medium-term online loans

When you need cash and need it quickly, a traditional loan may not seem the most obvious solution. For a start, the application process can be convoluted. It could take you days, even weeks, to assemble all the necessary paperwork, let alone get a decision. However, online lenders think more flexibly and act much more quickly.

In truth, you won’t get the money quite as fast as you would with a merchant cash advance or short-term loan, but if you can wait for a few days then this is another viable option. Best of all, interest rates are generally much lower for this type of finance, and you will enjoy the flexibility of repaying the capital over a number of years.

Invoice factoring and discounting

If you’re keen to solve your cash flow problems on an ongoing basis, you should consider invoice factoring and discounting. These flexible solutions allow you to borrow against the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. With factoring, the finance company takes control of your debtor ledger and assigns experienced credit control professionals to secure early payment and minimise your interest charges.

In contrast, with invoice discounting you retain control of your own debtors and use your own team to deal with late payments. This approach can be more advantageous if you have a strong accounts team and wish to avoid having clients deal with a third party, but for smaller businesses factoring can save a great deal of time and money.

What you need to know before you apply

Before making any applications for an emergency business loan, you should carefully consider all the available options. In particular, you should evaluate your likely acceptance for the types of finance listed above – when you need money fast, the last thing you need is to waste time on fruitless loan applications. As a result, the first thing you should do, even before cash flow problems arise, is familiarise yourself with your credit score. And of course, before you sign on the dotted line you should make certain that the interest rate and terms are competitive, and you won’t simply be creating worse problems further down the line.

When it’s time to apply, you need to decide how much you wish to borrow. Apply for too much and you’ll end up paying unnecessary interest – if you’re even accepted. Apply for too little and you won’t solve your cash flow problem. Similarly, it’s vital to make certain that you can afford the repayments – and then have all your paperwork ready so you don’t hold up the process. If you have everything you need, an alternative lender should be able to get back to you with a same-day decision – and you may even have the money in your hand within 24 hours.

Author information

Carl Faulds

Carl Faulds

Managing Director at Cashsolv

As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business. Carl continues an ethos of working with distressed businesses to help them overcome their financial problems.

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