It's estimated that 5.2% of businesses end up closing because of cash flow or sales problems.
Money can be difficult enough for business owners to come by under normal circumstances, but when unexpected costs come up it can be nearly impossible to find.
If you're a business owner, you need to learn about emergency loans. If you want to learn what to do when your business is in a tough financial spot, read on.
Tips for Getting Emergency Loans
When you're a business owner, you never know what tomorrow can bring.
A pipe may burst inside the office overnight and you need money to make emergency repairs, fast. A big contract may not have gotten signed and you need to make payroll, or you may just not have enough cash flow.
When you find yourself in a tough financial situation, emergency loans can help.
Qualifying for an unplanned loan can be tough for business owners and individuals, but there are things you can do to better your chances of getting emergency loans.
Know Your Options
When you're looking for emergency loans, you're going to find that you have a lot of options available.
There are a variety of loans you can qualify for, but some may be better for your needs than others. These are the most common kinds of loans and cash advances you're offered when you need emergency money:
Merchant Cash Advances (MCA)
When you choose this option, a merchant capital company gives you a lump sum of cash. You'll pay that company back by giving them a percentage of your business's daily credit card sales.
Depending on the percentage you decide to give the company, you could have your loan paid off relatively quickly. But the APRs on MCAs can be extremely high.
Emergency Personal Loans
When you're a small business owner, you'd do anything to keep your business afloat. You may feel tempted to take out a personal loan to save your company, but it's best to do this through business loans.
If you choose to get a personal loan, it'll be much harder to handle the debt in case the company has more financial problems. The debt won't be tied to your company, it'll be directly tied to you.
When you're looking for emergency loans, make sure you're only looking for business options. It puts you at a smaller financial risk.
Short Term Loans
Short term loans are like any regular loan you'd get, but these loans get funded much faster. Traditional loans can take weeks for approval, but you can have a short-term loan approved in a day or two.
Short term loans are one of the best options you have if you only have to handle one-off events to help your business through a slow period.
These loans can be paid off over several months or can be paid off in a short as a couple of weeks depending on how long you need the funding.
Could look into the 5 Ways Alternative Business Loans Can Help Your Company. These loan bypass the banks lengthly process and do support the short-term emergency business loan.
Know What You Need
Shopping for regular business loans and emergency loans are very different.
When you're looking for a regular business loan, you want to make sure that you have enough money to cover unanticipated costs. You may borrow a little more than you need to give yourself some extra money.
When you're shopping for an emergency loan, you should get something that's as close to what you need as possible. Only get enough to cover the emergency.
It's also important to be realistic about what your business can afford to borrow. You may need some pricey repairs, but your business may not be able to afford everything all at once.
Take time to consider the minimum and maximum amount you can afford to pay each month. Also be sure to consider how long you can handle making monthly payments.
Always Shop Around
You may be in a bind, but that doesn't mean that you should go with the first lender that approves your loan.
Be sure to take a little time to shop around. We know that you're more concerned about finding a loan as fast as you can, but if you rush into agreeing to a loan, you could be missing out on better deals.
Compare programs with other companies, and make sure you are working with a licensed regulated lender.
Have Your Information Together
Lack of documentation is one of the reasons why getting a loan can take so long. When you're looking for emergency loans time is precious, that's why it's best to be prepared.
The more information you can show potential lenders, the better. Make sure you have all of your important documents together before you head to your first meeting.
These are the most common documents that are requested for loans:
Personal credit score
Statement of use for the loan
If you don't have all of these documents, don't panic. Every lender has a different set of required documents, so check with the lender to see what they require.
Create a Recovery Plan
Some lenders deny applications for emergency loans because they worry that the loan candidates don't have a solid plan for recovery.
If you can show lenders that you have a solid plan for getting your business back on its feet, they're more willing to lend out money. Bringing a business continuity or recovery plan to your first meeting can show them that you're prepared.
Did you have to look for urgent loans for your business after a disaster? Do you have tips for people that need to look for loans? Tell us about them in the comments section!
If you have any questions about emergency loans, business loans, or loans in general, contact us so we can help.