Same Day Business Loans: How to Get Financing Today
Sooner or later, your business may run into a situation when cash on hand simply isn’t enough to meet a pressing demand or take advantage of an act-fast opportunity. When that happens, it’s good to know there are options that allow you to borrow money quickly — sometimes as soon as the day you apply. The biggest challenge to same-day business loans may be figuring out which option is best for your business.
“If you’re scrambling to get financing right away, you could wind up paying a ridiculous interest rate, because you don’t have time to meet with a lot of lenders and find the best deal,” said Joseph DeLaGarza, senior business counselor for the Illinois Hispanic Chamber of Commerce.
DeLaGarza advises that a good quick-cash loan option is one that’s already in place when it’s needed. A business credit card or business line of credit are two good examples.
“It’s a good idea to plan ahead,” he said. “When I work with my clients, I try to tell them to look at their financials so they’ll know what kind of financing they could qualify for before a sudden need arises.
“A lot of times, entrepreneurs wait until they have problems to start seeking financial resources — and they’re getting desperate. When that happens, there’s often not much that can be done because their credit has gone down or they’re showing losses.”
In other words, the best time to start thinking about quick-cash options is when you don’t really need them.
Where to find a same-day business loan
Alternative or online business lenders are almost always the main source for very fast cash. Most banks and credit unions take weeks and up to two months to approve a loan. However, some alternative lenders can underwrite and approve your loan within one business day. According to the 2017 Small Business Credit Survey, small businesses have much better luck getting approved for a loan by an online lender (75% success rate) versus a large bank (56% success rate).
The structure and costs of same-day business loans vary, but they typically share the following qualities:
- They have higher interest rates than traditional loans
- They have short repayment terms
- They are often approved for borrowers with lower credit scores (frequently as low as 600 or 620) than would be required for bank loans (usually a minimum score of 680)
- They require less documentation and paperwork than a traditional loan
- They can be approved and funded very quickly
How much could you borrow?
Types of same-day business loans
Here’s a look at some of the most common same-day business loans and quick-cash financing options for businesses.
Short-term business loans have a couple of significant advantages over traditional long-term loans: they’re quicker and easier to get.
You can apply for short-term loans (most commonly available from online lenders) and receive funds in as little as 48 hours. They also require much less proof of business viability (or personal creditworthiness) and can provide loan amounts ranging from $2,500 to $250,000. The repayment period is much shorter (usually three to 18 months), interest rates are typically higher and payments are often made daily or weekly.
“Whether or not that’s a good deal depends on whether or not the entrepreneur is certain he can repay on schedule,” DeLaGarza said. “I always ask my clients how a loan is going to help them increase revenue or reduce cost because that loan is going to be an added expense. While you’re repaying it, you have to be sure you can afford it.”
Lines of credit
A business line of credit has the advantage of being a bird in the hand. If you have one, it’s there when you need it and, unlike term loans, you only repay the amounts you have drawn. Flexibility is its greatest selling point.
A line of credit isn’t always easy to qualify for, however, especially for very new startups. Traditional lenders often require several years of business history before approval and larger lines of credit may require collateral. Online lenders tend to have less-strict requirements, although that can result in lower credit limits and higher interest rates.
DeLaGarza is strongly in favor of business lines of credit, especially those secured in advance. While recognizing that they can be difficult to come by for very new businesses, he points out that after a business has begun generating revenue (or has established a good credit history with business credit cards) it can often qualify even if it’s for a loan as small as $5,000. “After they’ve used the line of credit and paid it off, businesses can always ask for an increase, or apply for a term loan,” he said.
DeLaGarza also noted that even relatively new startups that find it difficult to qualify might have better luck with nonprofit lenders.
“A lot of banks don’t like to lend to startups or to lend amounts less than $50,000 or any amount to anyone with credit scores lower than 680,” he said. “But not-for-profit lenders are willing to consider credit scores as low as 500 and offer interest rates ranging from 6 to 18%.”
Just because you haven’t already established a line of credit doesn’t necessarily mean they can’t be useful in an emergency. Approval can come as soon as one day for those who qualify.
Merchant cash advances
One of the most expensive ways – if not the most expensive way – to acquire fast cash is through a merchant cash advance. Merchant cash advances are not a loan, but a lump sum advanced to your business based on future credit card sales.
One of the major differences between a cash advance and a loan is that repayment is based on a factor rate (typically 1.2 to 1.5) as a form of interest. Factor rates can be converted to APR interest rates for the sake of comparison, an enlightening figure when considered with the length of time before full repayment is due. The converted APR may seem reasonable if you have a one-year loan term, but much less so if you only have two or three months. Most merchant cash advances end up with an APR between 70 and 200%, when converted.
“They can be really expensive,” DeLaGarza said. “There are some decent ones out there, but there are some that can really become a problem. They’re kind of like payday loans for consumers. They should be considered only as a last resort.“
Invoice financing is a much less expensive option (usually an APR between 15 and 35%) than a merchant cash advance, which monetizes your company’s unpaid invoices. Companies can either sell their unpaid invoices to a factoring company for a percentage of upfront cash (leaving the factoring company responsible for collecting invoices), or use the invoices as collateral to get an advance.
In most cases, businesses can immediately (sometimes within 24 hours) secure between 50 and 80 percent of an outstanding invoice by selling it to a factoring company or treating it as an asset for a loan. Whenever the invoice comes due, the balance (say 10 or 15%) is sent to your company minus a factoring fee (typically between 3 and 5%) — and the 3% is deducted daily or weekly until the invoice is paid.
Invoice financing is a more expensive option than a loan from a traditional lender, but DeLaGarza still considers it a solid option.
“It can be a really good tool, depending on the lender,” he said. “The good ones, who charge a reasonable rate, can really help with cash flow because you could get as much as 90% of the receivable quickly instead of waiting 30, 60 or 90 days.”
Business credit cards
Much like a business line of credit, a business credit card is one of those best-to-have-on-hand options that should be secured before an emergency arises.
According to the 2017 Small Business Survey of the Federal Reserve Bank of New York, business credit cards have become extremely popular for new startups — especially those whose owners believe they have no chance of securing any other form of financing. Among startup owners who don’t apply for traditional loans, 44 percent use credit cards, which aren’t a bad move when used properly. Even when you consider the high interest rates that could be charged on a credit card, when used responsibly, a credit card allows the business owner to begin to build credit history and possibly earn rewards or points for using the card.
In general, DeLaGarza considers business credit cards to be a viable option for certain uses as long as they’re paid back on time. His one major reservation about using them as a source of business finance, however, is that they’re often used for the wrong reasons.
“I often see entrepreneurs buy office equipment or machinery with a credit card when they really should have gotten a term loan,” he said. “A business card and a line of credit should be used for expenses you can pay off within a year. You don’t want to accumulate high interest rate debt.”
The bottom line
DeLaGarza stressed the importance of having funding in place before you need. Maybe you have an expensive piece of machinery that breaks down and is holding up production or you have the chance to pick up some inventory at a huge discount. The best uses for these types of small business loans are working capital, purchasing inventory, buying equipment, refinancing or acquiring another business.
“A lot of times entrepreneurs use the wrong financing tools for the wrong purchases and wind up paying extra fees and interest they shouldn’t have to deal with. And, eventually, if they keep doing that, they start running out of cash,” DeLaGarza said.
As with any loan, just be sure you really need the money and you can afford to pay it back. That’s especially important with same-day business loans, which come with a heftier cost.