Due to the economic disruption caused by the novel coronavirus pandemic, many small businesses are searching for emergency business loans. Thankfully, there’s no shortage of support out there. Federal and state governments as well as banks and private institutions have already increased their offerings for low interest loans.
However, if you’re worried that you won’t qualify for a business loan, you can leverage alternative options like grants, invoice factoring, and even your current line of credit.
Here are some of the best options for emergency capital right now, as well as some alternative resources that can be accessed in any circumstances.
The best options for emergency capital right now
For businesses hoping to keep their doors open and cover operational costs, emergency loans are the most viable option.
Paycheck Protection Program loans
As part of the CARES Act (signed into law on March 27, 2020), $350 billion in funding was put towards the new Paycheck Protection Program (PPP). On December 27, 2020, an additional $284 billion has become available to facilitate more PPP loans and applications will be available for submission likely around mid-January.
These SBA-backed loans are intended to provide short-term funding for small businesses so they can keep employees on the payroll, even if they have to close their doors. Businesses who use their PPP funds for payroll costs can qualify for up to 100% loan forgiveness.
Round two of the Paycheck Protection Program
Eligible businesses:
- Small businesses, tribal businesses, veterans organizations, and nonprofits with fewer than 300 employees
- Sole proprietors
- Independent contractors
- Self-employed individuals
Max borrowing amount:
First time applicants may borrow the lesser of $10 million OR 2.5x average monthly payroll costs
Second time applicants may borrow the lesser of $2 million OR 2.5x average monthly payroll costs
Term lengths: 2 years
Interest rates: 1%
Forgiveness: Up to 100%*
Deferred payments: 6 months (though interest still accrues)
Availability: Likely opening early-mid January 2021
Use:
- Payroll and compensation
- Insurance premiums and healthcare benefits
- Mortgage interest costs
- Rent and utilities
- Interest on other debt obligations
*Forgiveness may be reduced dependent on reduction of number of employees or reduction in salaries.
SBA Disaster Loan
The Economic Injury Disaster Loan program (EIDL) by the SBA is most likely the best option for businesses in need of emergency funding, due to its high limit and low interest rates.
SBA Disaster Loans Terms and Rates
Eligible businesses: Small businesses and private non-profits
Max borrowing amount: $2,000,000
Terms lengths: Up to 30 years
Interest rates: 3.75% (2.75% for non-profits)
Fees: N/A
Keep in mind that in order to qualify for an SBA Disaster loan, businesses must not have access to other capital.
Other lenders
Though not every lender is offering coronavirus-specific assistance, many are still actively making loans or offering financial products that can help small businesses with cash flow. These lenders include Kapitus, Kabbage, OnDeck, FundingCircle, BlueVine, and Fundbox.
Kabbage’s HelpSmallBusiness initiative can also help businesses that have been forced to temporarily close their doors, by allowing them to offer gift certificates online, and accept payments using those gift certificates later using Kabbage Payments.
In addition, services like Lendio and Fundera can aggregate business information and apply to many loan options at once, saving you time from sending in many separate applications.
Small business loan providers
- Lendio: Apply now
- Kapitus: Apply now
- Kabbage: Apply now
- OnDeck: Apply now
- FundingCircle: Apply now
- BlueVine: Apply now
- Fundbox: Apply now
We have partnered with some lenders, which may provide us compensation.
When to consider emergency business funding
If your business has been put at risk due to an acute circumstance beyond your control, then it’s a good time to consider emergency business funding. The coronavirus pandemic—and the forced lockdowns ordered by many governments—is a relevant example, but emergency business funding is also available to organizations that have been impacted by other events like earthquakes, floods, hurricanes, and other rare events.
Advantages and disadvantages of emergency loans
There are several advantages to emergency loans:
- Quick processing time: Institutions may try to speed up the application and approval process in order to meet the urgent needs of businesses.
- Low interest rates: Reputable institutions are highly sensitive to the appearance of exploiting difficult circumstances, so businesses that are struggling will often get low interest rates with emergency funding.
- Tailored to needs: Often, banks will set up case-by-case offers recognizing that businesses are hit in specific ways, so there may be options available that are not advertised.
Some disadvantages exist as well:
- Loans, not grants: Financial institutions offering capital tend to structure offers as loans that must be repaid. For businesses in need of emergency funding, temporary relief can help, but the business will need to get back on its feet by the time payments are coming due.
- Geographically specific: Many offers are from regional banks, that may only be able to provide assistance to businesses in their area.
- Not immediate: Though processing time can be expedited, access to funding will almost never be available same-day.
Types of emergency business loan and other funding options
Many small businesses are searching for emergency funding due to the rapid onset of economic changes caused by the novel coronavirus.
Here are some of the options you might consider if your business is feeling the strain.
- SBA disaster loans: 1-3 weeks
- Term loans: 1-4 weeks
- Business line of credit: 2-7 days
- Bridge loans: 2-7 days
- Invoice factoring: 2-5 days
- Merchant cash advance: 1-3 days
- Small business grants: 1-2 weeks
- Business credit cards: 1-2 weeks
SBA disaster loans
As referenced above, SBA disaster loans are provided by the Small Business Administration during times of physical or economic emergency. These loans tend to be low-interest and are processed relatively quickly (within 1-3 weeks) in order to provide bridge funding to businesses affected by acute circumstances beyond their control.
There are four main considerations for an SBA disaster loan:
- Location: Operate a business located within a federally declared disaster zone.
- Credit score: The SBA will run a routine credit check, but also evaluates factors such as recent income and payment history.
- Collateral: For loans larger than $25,000, the SBA will require some form of collateral (e.g. business property).
- Repayment: Repayment schedules are crafted on a case-by-case basis .
Keep in mind—these loans are designed to be as accessible as possible, so don’t be afraid to apply and work with the SBA, even if you have bad credit or lack of collateral.
Emergency bank loans
Business bank loans are the more traditional choice of lending in fair weather, but can also be considered in emergency environments.
Tested financial institutions, like banks, can typically offer lower interest rates and longer repayment terms. However, they also have stricter lending criteria, meaning that new or unprofitable businesses may not qualify.
Term loans
A business term loan is the traditional lending process for banks—think mortgages, student loans, and car payments. You borrow a sum of cash upfront, then pay back that amount plus interest over a certain period of time, or “term.”
For businesses, term loans can carry interest rates as low as 6% (though they can also go much higher). Because the application process can be lengthy (requiring weeks or even months), these may not be the fastest emergency option.
However, if you’ve been in business for a while, have good credit, and are generating revenue, there’s a chance you could be approved in a couple of days.
Pros of business term loans:
- Trusted lenders
- Fixed interest rates
- Applicable to any business purpose
Cons of business term loans:
- Rigid repayment structure
- Slower to fund
- May require collateral
You can pursue a business term loan from almost any financial institution, but there are also online providers available. Online term loan providers include Credibility Capital, OnDeck, and StreetShares.
Business line of credit
If you’re looking for a funding source that feels more like a credit card than a traditional loan, a business line of credit could be a great option. Revolving lines of credit can be pursued from traditional banks or alternatives lenders and act very similarly to credit cards.
Typically, line of credit lenders will approve you for a certain credit amount over a certain period of time. During that time, you can access your line of credit as much or as little as possible. As you pay off your balance, your credit becomes available to use again—and you only pay interest on the amount you’re currently using.
Pros of business line of credit:
- Only pay interest on what you use
- Credit becomes available again as you pay if off
- Withdraw in any increment needed
- Approval in a few business days
Cons of business line of credit:
- Collateral required for secured lines; Higher rates for unsecured
- Fees vary by lender (withdrawal fees, maintenance fees, etc.)
Business lines of credits are offered at most traditional banks; online providers include Kabbage and LendSpark.
Emergency bridge loans
Bridge loans are a kind of temporary financing intended to cover capital shortfalls until a company secures more permanent funding or recovers from unforeseen circumstances. The most common types of bridge loans include operating and mortgage loans, though they can also be used to allow businesses to make quick moves like strategic acquisitions.
As bridge loans are short-term, small businesses may be able to qualify more easily. However, they do tend to carry higher interest rates.
In the case of emergency, federal and state governments often offer bridge loan funding to small businesses, in addition to other loan programs. For example, the SBA launched the Express Bridge loan program, thought this program will sunset on September 30, 2023.
Invoice factoring
Invoice factoring is a method of turning your unpaid customer invoices into fast cash. In this kind of emergency funding, you sell your invoices to a factoring company who in turn pays you an advance on your invoices.
Typically, invoice factoring companies will pay out in two installments: 1. An advance of 70-90% of your invoice at point of contract and 2. The remaining % of your invoice minus any fees after the customer has paid the invoice.
Pros of invoice factoring:
- Fast funding: You can usually set up funding within a few days
- Easy approval: Your existing invoices are enough to get approved
- Flexible terms: You can offer your clients more flexible terms than you might be able to when you’re dependent on their payments
Cons of invoice factoring:
- High costs: Usually there’s a factoring fee of about 3% (plus termination, monthly minimums, etc.)
- Loss of control: Invoice factoring companies negotiate with your clients on your behalf, so it’s imperative that you find a company that reflects your customer success values
Popular options for invoice factoring companies include BlueVine, Breakout Capital, and Fundbox.
Note: Invoice factoring is sometimes confused with invoice financing. The primary difference between the two is that in financing, you don’t sell your invoices, but instead use them as collateral to qualify for a loan or line of credit. In addition, you maintain responsibility for chasing payments from customers.
Merchant cash advance
A merchant cash advance, like some of the other funding options we’ve explored, is not truly a loan. Rather, merchant cash advance (MCA) providers give you an upfront sum of cash in exchange for a slice of future sales.
MCAs do not have traditional interest rates, but work from factor rates instead. Your total repayment (plus fees) is determined by multiplying the advance received by the factor rate. For example, if you received a MCA of $20,000 at a factor rate of 1.5, your total repayment would be $30,000.
Merchant cash advances are typically repaid one of two ways. In traditional MCAs, you payback the advance as a percentage of your debit or credit card sales. Payments are withdrawn directly from your credit card revenue, in partnership with your credit card processor. You may also set up your MCA as a ACH withdrawal, wherein MCA providers remit a fixed daily or weekly debit from your bank account.
In either case, MCA repayment periods tend to be short term (24 months max) and have high rates (because of fluctuating sales schedules, APRs often run in the triple digits). While merchant cash advances can be an easy way to get some quick cash, NerdWallet advises that you consider MCAs “a financing option of last resort.”
Pros of merchant cash advance:
- Low barrier for approval
- Quick turnaround (a day or two)
- No collateral required
- No absolute repayment
- If sales are down, so are repayment amounts
Cons of merchant cash advance:
- Higher sales mean higher APRs
- Rigid repayment schedules (daily or weekly)
- No benefit to early repayment
- No federal oversight
- Can lead to debt-cycles
Popular providers for merchant cash advances include National Funding, CAN Capital, and Fora Financial.
Emergency small business grant programs
Almost any business can access funding through small business grant programs. The Small Business Administration regularly delivers grants to companies involving research and development, exports, and veteran mentorship.
Grants.gov is another go-to resource for accessing funds from federal grants. Depending on your company size and industry, you may be able to find grants specific to your business. For example, grants are often available to minority business owners and technology companies.
In times of true emergency, state and local governments frequently offer grants to small businesses. Even private companies have been known to do the same. For example, Facebook is currently offering $100M in cash grants and ad credits to small businesses affected by the coronavirus.
Business credit cards
While business credit cards may not seem like the knight-in-shining-armor solution to your emergency capital problems, when leveraged correctly, these lines of credit can be a great boon to your business.
If you have a strong personal credit history, it’s relatively easy to get a business credit card for your small business. Business credit cards are known for offering competitive rewards, though some come with annual fees. Search for free corporate card solutions, like BILL, in order to save money in times when funds are tied-up.
If you’re an established business credit card holder, you may also be able to negotiate with your current provider to increase your lending limit or adjust your payback schedule. With a good history of repayment, most lenders will be willing to work with you.
What to consider when applying
You may be looking at your cash flow statement and wondering how you’re going to make it, but remember, this is no time to panic.
It’s important to weigh all your options carefully, calculate how much you actually need to survive and how much you can actually afford. Talk to your financial advisor, accountant, or bank representative, and see if you can find any wiggle room. All in all, just be sure to do your research so you only commit to the best financing option for your small business.
