Last Updated on September 6, 2024
As a business owner, you’re always planning for the future. But no matter how well you plan ahead, there will always be unexpected emergencies and a need for emergency business loans. When these happen, you will need to find quick sources of funding to keep the business running.
Back in the day, businesses relied mainly on banks for capital, which usually came with many hurdles and challenges. To bridge the gap left behind, alternative lenders became more popular thanks to the rise of the fintech industry.
Why businesses are opting for alternative lending sources
The biggest challenge for businesses requesting bank loans is the time it takes before approval. A typical business bank loan, for instance, takes several weeks or even months before approval. That waiting time simply can’t work for a business experiencing an emergency.
Since emergencies don’t wait and can cost business owners thousands of dollars in lost business if not taken care of immediately a solution was created through financial technology. Alternative lenders could approve a loan request within days, sometimes in less than 24 hours!
Apart from that, alternative lenders have a lot more options to choose from when a business needs capital. Some of these options are more advantageous than conventional bank loans, making them preferable to business owners.
What options do you get from alternative lenders
A business line of credit
Most business owners are familiar with a business line of credit and this has become one of the most popular options for financing. It is different from a bank loan in the way it’s structured and works in a similar way to a credit card but instead of plastic, it provided you with cash. Basically, a line of credit operates in a revolving capital structure where the lender furnishes your business with the capital it needs when it needs it without charging interest on the money that you do not use.
You can then use the funds provided to handle the business emergency, but repayments are made periodically (usually monthly) based on the last amount you drew down on the line. The line of credit gives you the most flexible form of funding. You can choose to pay back the credit at any time and when you do, the credit once again becomes available to draw upon.
The main advantage of business lines of credit is that you never pay for more than you needed. A term loan from a bank requires paying back the entire loan amount with interest at specific intervals and over a predetermined period. Instead, with a line of credit, you only pay back with interest the amount you withdrew from the account.
In the end, you may find that you saved a lot of money in interest payments because you only paid back exactly what you needed for the emergency.
Unsecured business loans
To get an unsecured bank loan, you have to show the bank that your business has been operational for 6 months and generating revenue for at least 3 of those months. Most unsecured business loans do not need to show making a profit over that time but simply just require positive cash flow. If your business is not generating revenue then you would be required to provide collateral such as some of the business’ assets or personal assets.
For startups, it is very difficult to show a positive cash flow due to startup costs, leaving many small businesses locked out of funding.
With alternative lenders, however, these businesses can receive unsecured funding in various ways. Some of these include:
- unsecured term loans
- unsecured lines of credit
- revenue-based factoring
- split funding or merchant cash advances
Business credit cards
A credit card for your business is very similar to a line of credit where your business receives a preset spending limit, just like your personal credit card. These are especially important for those critical business emergencies because you can always tap into your credit card to pay for expenses. Furthermore, it is always advisable to keep business and personal expenses separate to avoid complications during tax season and to track expenses more easily.
While business credit cards also charge high interest, you can save money by identifying those credit card providers who offer introductory offers like 0% APR for the first year. Some credit cards also attract rewards from their use, and this can be an added benefit.
Most businesses use credit cards to start the business but as time passes by and the expenses increase many business owners find themselves maxed out on these credit cards.
It is important to pay your business credit cards on time since many lenders will take your utilization into consideration before extending traditional funding to your business.
Invoice factoring
This form of financing is very handy for businesses that collect money mainly by sending invoices to their customers. Rather than wait for weeks or even months for the customer to pay, a business can leverage these invoices to receive immediate cash flow. A lender will act as a factor and advance a portion of the money expected to be paid, usually between 70% and 85%.
When the customer finally pays the invoice, the factor will deduct the charge and send the rest to your business bank account.
Hard money lending
When all else fails, you can always leverage your real estate property to receive a loan to run your business. They are considered to be loans of last resort because you will often have to pay back in a short timeframe and at a higher cost.
Nevertheless, it may be necessary to keep your business afloat. The good news is that you can negotiate for favorable terms because the lenders are usually individuals or companies and not banks.
If you are in a Jam and need quick finance the world of Alternative Lending and Financial Technology has a wide array of programs that can get cash in your business account in under 24 hours.
