What is an emergency business loan?
An emergency business loan is a small-business loan that provides relatively fast funding to address unexpected financial challenges.
For example, you might use an emergency business loan to cover equipment breakdowns, cash-flow shortages or unforeseen taxes. Many of these loans are offered by online lenders with streamlined applications, allowing them to provide funding within one business day.
Some emergency business loans use a factor rate, which can result in higher borrowing costs than an interest rate). These loans might also incur origination fees or prepayment penalties.
What can emergency business funding be used for?
Small-business owners can use emergency loans to cover urgent costs, such as rent, payroll, inventory or payments to suppliers. You generally must pay these expenses as soon as possible to keep your company running.
Emergency funding generally provides working capital but is not for business expansion. Companies might use these loans to survive natural disasters or pandemics.
Types of emergency loans for business
An emergency business loan is not a specific loan type. However, several types of business funding can provide relief in an emergency.
Business term loans
Term loans, also known as installment loans, are a common funding source for small businesses. While they are often used for business expansion, many term loans offer same-day or next-day funding.
Business term loans are ideal if you need upfront funding and meet lender requirements. Many lenders require at least two years in business, sufficient revenue and strong personal or business credit.
Business lines of credit
A business line of credit works like a credit card, letting you borrow up to a fixed limit.You pay interest on the amount you borrow. Making payments replenishes your available credit.
Business lines of credit typically don’t provide as much upfront funding. However, their flexibility is suitable for businesses that need smaller amounts to cover ongoing expenses.
Invoice factoring
Invoice factoring involves selling your unpaid invoices to a factoring company at a discount. The factoring company pays you a portion of the invoice value, typically 80% to 90%. It then collects payments from customers and sends the rest of the invoice value to you, minus fees, which generally range from 1% to 5%.
Merchant cash advances
A merchant cash advance pays a lump sum in exchange for a portion of your future credit or debit card sales, plus fees. The funding provider typically collects a percentage of your daily sales until the amount is fully repaid.
SBA disaster loans
The Small Business Administration (SBA) provides disaster loans, including for physical damage, mitigation and economic injury.
You can use SBA disaster loans for losses not covered by insurance or the Federal Emergency Management Agency as well as operating expenses that could have been met if not for the disaster.
SBA Express loans
These loans let certain lenders use their own approval processes, which might result in faster approval. The maximum loan amount is $500,000, and the SBA guarantees up to 50% of the loan amount.
Interest rates on SBA Express loans are determined by the lender. However, they cannot exceed the SBA maximum. No collateral is required for SBA Express loans of up to $50,000.
