By Content Team
Updated on: July 10, 2024
Fast business loans and alternative financing are forms of small business funding where the application and underwriting process is short enough for small business owners to see the cash in their bank accounts within a couple of days of applying. There are plenty of different types of business financing available in that timeframe depending on the traits of the borrower.
The ideal situation for any type of funding is that it can be sought out with careful consideration in an ideal credit scenario. However, that’s not always going to be the case. Life happens, and sometimes a business needs to look over financing options from an imperfect position. Companies may need a fast business loan for various reasons, including:
Fast business funding benefits companies that need quick access to capital and cannot afford to wait for lengthy loan approval processes that are often associated with traditional lending institutions.
Startups, small businesses, and those with less-than-perfect credit histories may find qualifying for financing through traditional channels to be difficult, making fast business loans a practical solution.
Fast business loans also benefit companies that need flexible repayment terms. Many fast business loans are structured as short-term loans with repayment terms ranging from a few months to a few years. This allows businesses to get the necessary funds quickly, without the burden of long-term debt. Some types of financing even allow for different cadences of repayment instead of traditional monthly payments.
Fast business loans can offer several benefits and drawbacks for both lenders and borrowers. Every aspect of small business financing is a give-and-take. Making one thing (interest rates, loan amounts, repayment terms) more favorable to a borrower usually means that another thing (collateral, personal guarantees, minimum credit scores) are then tilted in favor of lenders.
But in general, there are a few benefits you’ll always see with fast business loans and some downsides to quick business loans as well.
Quick access to capital: By definition, fast business loans offer quick access to cash, which can help businesses cover unexpected expenses or take advantage of new opportunities without having to wait for a long loan approval process.
Flexible repayment terms: Many fast business loans offer flexible repayment terms, which can help businesses manage their cash flow and repay the loan on a schedule that works best for them.
Easy application process: The application process for fast business loans is typically simple and straightforward, often requiring only basic business and personal financial information. At The LCF Group, for example, we ask only for your monthly revenue, whether you’ve got a bank account, and how much funding you’re looking for; that’s enough to get started (and have cash in your account the next day).
Unsecured loans: Some fast business loans are unsecured, meaning that they do not require collateral to secure the loan.
Higher interest rates: Fast business loans often come with higher interest rates than traditional loans due to the risk associated with lending money quickly. This is part of the give-and-take mentioned earlier. A fast business loan won’t be a good option for real estate purchases, for example, due to the amount of interest that’d accrue.
Short repayment terms: While flexible repayment terms are a benefit, some fast business loans may come with short repayment terms that can be challenging to meet, especially for businesses that are still in their early stages.
Limited loan amounts: Fast business loans may have lower loan limits than traditional loans, making them less useful for businesses that require large amounts of funding.
Once you’ve determined that a fast business loan is right for your situation, you’ll need to find one. Fortunately, Traditional banks offer a variety of fast business loan options, including:
A business line of credit is a type of revolving credit that allows businesses to access funds on an as-needed basis. Once approved, businesses can draw funds up to their credit limit and repay them as needed.
The U.S. Small Business Administration offers an Express loan program. These are a type of fast business loan designed for businesses that need quick access to capital. These loans have a maximum amount of $350,000 and can be used for a variety of business purposes. Other types of SBA loans can take weeks or months to receive.
Term loans are a type of fast business loan that is paid back in regular installments over a set period, often between one and ten years. These loans typically have higher loan amounts than lines of credit and can be secured or unsecured.
Equipment loans are a type of fast business loan that allows businesses to purchase equipment with borrowed funds. The equipment itself serves as collateral for the loan.
There are several options available for fast financing that are not legally considered loans. These include merchant cash advances and invoice financing.
Merchant cash advances are not loans. Instead, merchant cash advances (MCAs) are a type of alternative business financing where an MCA provider advances a lump sum payment to a business in exchange for a percentage of the business’s future sales.
MCAs are particularly fast: the cash can hit your bank account within a single business day. Unlike loans, MCAs do not have fixed repayment schedules or interest rates. Instead, the repayment amount is calculated as a percentage of the business’s daily sales, and the advance is typically repaid over a period of several months.
MCAs are often used by businesses with inconsistent or seasonal cash flow, and they can be obtained relatively quickly with minimal paperwork and credit requirements. However, they can also be expensive, with APRs that can exceed 100%.
Invoice factoring, also known as accounts receivable financing, is a type of fast business financing that allows businesses to borrow against their outstanding invoices. The financing company advances a percentage of the invoice amount and collects payment directly from the customer. It should be noted that invoice financing is by definition not a loan, and thus not subject to many of the laws and regulations that loans are subject to.
Many financial institutions are able to offer the fast business financing that companies need. Banks, alternative lenders, and online lenders all have their benefits and drawbacks when it comes to fast business loans.
Benefits
Established reputation: Banks have been around for decades, and many businesses feel more comfortable working with a reputable institution that has a history of successful lending.
Lower interest rates: Traditional bank loans sometimes feature lower interest rates on loans due to their established reputation and access to lower-cost capital.
Larger loan amounts: Banks may be able to offer higher loan amounts than alternative or online lenders, which can be beneficial for businesses that need significant amounts of funding.
Drawbacks
Lengthy application process: Banks often have a lengthy loan application process that can take weeks or even months to complete, making them less suitable for businesses that need quick access to funds.
Strict lending criteria: Banks have strict lending criteria, and businesses with less-than-perfect credit or limited collateral may have difficulty securing funding.
Limited flexibility: Banks may have rigid loan terms and limited flexibility when it comes to repayment schedules, which can be challenging for businesses that need more flexible options.
Benefits
Easier approval process: Alternative lenders often have more flexible lending criteria than banks, making them a more accessible option for businesses that have been turned down by traditional lenders.
Faster access to funds: Alternative lenders can often provide funding within days, making them a good choice for businesses that need cash quickly. Some alternative lenders offer funding options that only require a few months of revenue and bank statements in order to get approved.
More flexible terms: Alternative lenders often offer more flexible terms and repayment options than traditional lenders, which can be beneficial for businesses with unique needs.
Drawbacks
Higher interest rates: Alternative lenders often charge higher interest rates than banks due to the risk associated with lending to businesses with less-than-perfect credit.
Shorter repayment terms: Some alternative lenders may require businesses to pay back the loan in a short period, which can be challenging for businesses with limited cash flow.
Hidden fees: Alternative lenders may charge hidden fees, such as origination fees or early repayment penalties, which can add to the overall cost of the loan.
Benefits
Easy application process: Online lenders often have a streamlined loan application process that can be completed online in a matter of minutes.
Fast funding: Online lenders can often provide funding within a few days, making them a good choice for businesses that need cash quickly.
More flexible terms: Online lenders may offer more flexible terms and repayment options than traditional lenders, which can be beneficial for businesses with unique needs. Businesses with bad credit are more palatable for these lenders.
Drawbacks
Higher interest rates: Online lenders may charge higher interest rates than banks due to the risk associated with lending to businesses with less-than-perfect credit.
Limited in-person support: Online lenders may not have a physical presence, which can make it challenging for businesses that prefer to work with someone face-to-face.
Choosing the right fast business funding can be a daunting task, but the following factors can help companies select the right loan for their business:
Amount: Determine the amount of money your business needs and make sure the financing you select offers the necessary funds.
Interest rates and factor rates: Compare interest rates or factor rates from different lenders to ensure you get the best rate possible.
Terms: Look at the repayment terms, including the length of the loan and the repayment schedule, to ensure it works for your business.
Repayment options: Choose a loan with repayment options that work for your business, such as flexible repayment schedules or early repayment options.
Funding time: Consider the time it takes for the lender to fund the loan, and make sure it works with your business needs.
Lender reputation: Research the lender’s reputation and read reviews from other businesses to ensure you’re working with a reputable lender.
Hidden fees: Be aware of any hidden fees, such as origination fees or prepayment penalties, that may be associated with the loan.
Eligibility requirements: Check the lender’s eligibility requirements, such as credit score or annual revenue, to ensure you qualify for the loan.
By considering these factors, businesses can find the business lender that best meets their unique needs. It’s essential to do your research and compare loan options from multiple lenders to find the best fit for your business.