instant business loans

Instant Business Loans: Best 5 Options to Fund Your Business

In every business owner’s journey, there’s bound to be a time when cash flow is slow and yet your expenses are piling up. That’s where instant business loans come in. Gone are the days when you need to wait for months to get financing from a bank (if at all — they’re really hard to get funding from). The last few years have seen a drastic rise in alternative online lenders. Companies like Clarify Capital, Kabbage, OnDeck, and FundBox are leading the charge with a new way to raise working capital.

In this new series tackling an alternative to venture capital, we will look at all the options available to get funded without a VC or bank loan.

Who can apply for fast business loans?

While there is no limitation on the type of industry you are in, the general guidance is for your business to meet a few requirements to qualify. Here is what alternative lenders like to see (some will provide you a loan even if you don’t meet them all):

  1. At least 1 year in business
  2. Your company generates $10,000+ in monthly revenue
  3. A decent credit score is good to have, but not a requirement.

The first two are usually not an issue for most business owners. With regards to your credit score, the higher your score, the better interest rate you will get. So even though you can get funded with bad credit, expect to have a higher interest rate as compared to someone whose score is at least 650.

What are the benefits of an instant business loan?

The pros of alternative lending are exactly what is bad about VC money and bank loans. With a traditional bank, you are required to put up collateral. That can be a high-risk decision. If you fail, the bank can repossess the collateral you put up (for many it’s their own home). Unless you are an adrenal junkie, that amount of risk is hard to swallow.

Online lenders have no collateral requirement. Instead, they base their decision on the three factors mentioned above (time in business, monthly revenue, credit score). The process is also much faster. Some claim to get you funded within a day or two. Clarify Capital and OnDeck are ones that have the fastest turnaround.

Why would you even need an instant business loan to begin with?

Unless you have billions of dollars in the bank from inflated valuations (look at you here Uber), unexpected cash flow problems come up that require access to quick working capital. When such a need arises, you don’t have the time or energy to go through a lengthy and arduous process with a bank to get a loan. I have never seen a bank close a loan within 24 hours, let alone a month. Here are the two most common situations that require quick funding:

1. Equipment financing

If you’re a transportation business, you might need trucking financing to get a new truck or cover costs to repair an existing fleet. In this type of funding, the physical equipment you are going to buy functions as the collateral. Instead of spending money out of your own pocket, you could buy or lease equipment with a loan instead — and use your in-house cash flow for growth marketing.

2. Business growth opportunities

Run a successful restaurant and eyeing to open a new location? A restaurant business loan can be used to lease a new location or remodel an existing one. You could also use it to hire additional staff or purchase inventory for your new joint.

Tips to get your loan instantly approved

While all online lenders promise a quick turnaround to get you funded fast, there are a few things you can do to speed up the process:

Get your financial documents ready. Prior to applying for the loan, keep at least 3 months of bank statements and one year’s tax return handy. From what I’ve been told by some business owners, the tax return is usually optional but does help to speed things up.

Ensure you meet the minimum requirements. You should have at least $5K-$10K in monthly revenue. If you don’t meet that minimum, getting a loan is going to be tough. If you are below that level, a better option might be raising capital through a traditional VC (who will take equity in your company in exchange for capital). Your company should also have been in business for 6 months at the minimum. The reason is the risk for the lender. The longer you’ve been in business, the lower risk for them to lend you money without defaulting on payments.

Shop around! Don’t just take the first offer you get. Apply to multiple lenders to compare interest rates and terms. Applying to several different lending companies can be time-consuming, so a way to avoid that is by using a trusted loan brokerage. It’s hard to find a good broker, but once you do, they can save you both time and money by utilizing their existing relationships with underwriters.

Types of instant business loans with quick approvals

Working with a loan brokerage here can help you the most. There are so many different types of business loans that understand the pros and cons of each can make your head spin. Here are just a few of your options:

Short Term Loans

When you think of a business loan in the traditional sense, you are referring to a term loan. These short-term loans are the simplest to grasp. You are getting a fixed amount of funding and have to pay it back with a specified interest rate over a fixed payment term length. A majority of the alternative lenders provide you a short-term loan. Read on for the other financing options.

SBA Micro Loans

If you are in the United States, the Small Business Administration will back an SBA 7(a) loan through their partnered lenders. The SBA itself doesn’t loan you working capital. Instead, they guarantee your loan with other lenders. This reduces the risk for lenders as their investment is covered by the federal Small Business Administration.

Business Line of Credit

If you are familiar with a home equity line of credit, a business line of credit follows the same principle. You get approved for a fixed credit line, but can choose to utilize it when the need arises. You only pay interest on the amount of the credit line that you use. For example: if you have a $100,000 line of credit, but are only using $20,000 of it, you pay the interest on the $20K you have utilized.

Merchant Cash Advance

Often confused as a term loan, with a merchant cash advance you are essentially selling a portion of your future earnings for immediate capital. A lender or underwriter will look at your most recent bank statements to estimate how much cash flow you will generate in the coming months. And use that calculation to lend you money against your future earnings or outstanding invoices that are yet to be paid.

There are several other types of quick business loans including invoice financing, factoring, mid-prime loans. I did warn you that all the options available to you can be a bit overwhelming at first. My recommendation, especially if this is your first rodeo into lending, is to get a trustworthy broker to guide you through the process.

Let me know your thoughts and questions in the comments section below. In future parts of this series, we’ll delve into the details of each type of business loans to weigh the pros and cons.