Same-day business loans are exactly what they sound like. They provide quick funding to business owners who need money now. While swift, same-day business loans do have some drawbacks. Interest rates are generally higher, and repayment terms tend to be shorter. That could be a costly combination for some business owners.
Here’s what you need to know if you’re considering a same-day loan for your business.
- They provide emergency financing: Same-day business loans can come to the rescue if you’re faced with a business emergency that requires immediate funding. That might include cash flow issues, inventory shortages or any other situation that requires quick cash.
- They can improve your credit: Same-day business loans can provide funding and give you an opportunity to improve your credit if you consistently make on-time payments. (Your payment history makes up 35% of your FICO Score.) That’s important if you plan on applying for different types of business financing in the future — strong credit typically unlocks the best rates and terms.
- They usually have softer eligibility requirements: Loans that are backed by the Small Business Administration (SBA) are known for having strict eligibility criteria. While interest rates tend to be more favorable, the application process is lengthy and requires a lot of documentation. Same-day business loans usually have looser requirements, making them ideal for folks with less-than-perfect credit.
- Interest rates can be steep: Same-day loans allow for quick funding, but they come at a price. Some lenders have starting APRs of 35%. It can add up fast, especially if you’re borrowing hundreds of thousands of dollars.
- Repayment terms are often short: Unlike SBA loans, same-day business loans usually come with a short repayment window — typically anywhere from three to 24 months. A shorter term could translate to large payments, depending on your interest rate and the size of your loan. You’ll want to make sure there’s room for that expense in your business budget.
- It might only be a Band-Aid: It all comes down to why you’re seeking a same-day business loan in the first place. If it’s to cover a one-off expense — and you can easily afford your new monthly payment — it could make a lot of sense. But if you have a recurring cash flow problem, a new loan could just be a costly temporary fix. The idea is to identify the underlying issue, then make intentional business decisions to remedy it. That might require cutting expenses, restructuring your organizational flow or investing more (or less) in certain departments.
3 times you should take out a same-day loan
Because of the high interest rates and fees, same-day business loans aren’t normally the first choice for financing a business, but there are certain situations where it might be a good match.
1. You have an expense you can’t put off
Some business expenses are more significant than others. If, for example, a major piece of equipment breaks down, you’ll likely need to address it right away to continue operating as normal. That can put you in a tough spot financially if you aren’t prepared. A same-day business loan could be just the thing to see you through.
But again, this type of financing shouldn’t be used to plug up holes caused by a greater underlying problem. You’ll want to get to the root of your cash flow issues to prevent them from derailing your business.
2. Your balance sheet can easily absorb a new loan payment
Even if you need instant funding for a critical business need, be sure that your budget is strong enough to accommodate a new loan payment. Before moving forward, clarify details like:
- Your monthly payment
- The length of your repayment term
- The interest rate
- Any additional fees, such as loan origination fees or prepayment penalties
If you rush into a same-day loan without considering these things first, it could create a real financial strain for your company moving forward. This might impact your ability to grow and meet your long-term business goals.
3. You don’t qualify for traditional financing
As previously mentioned, SBA loans are known for their rigorous eligibility requirements. Startups may struggle to qualify, especially since they’ll likely have to prove that they’ve been in business for a couple of years and have steady revenue coming in. Your personal financial health comes into play too. Be prepared to provide your income tax returns and personal credit information when applying for an SBA loan. Folks with a minimum credit score of 680 have the best odds of getting approved.
These loan requirements might be unrealistic for some business owners. A same-day business loan can be a viable alternative that provides much-needed funding. Be certain you have a solid business plan so that the funds are put to good use. You’ll be responsible for repaying your loan — whether your company succeeds or not.
Alternatives to same-day business loans
A same-day business loan is typically structured as a short-term loan that provides the borrower with a lump sum upfront. You’ll follow a repayment schedule until the balance is paid. Again, interest rates are usually on the higher side — and don’t expect extremely long repayment terms. If a same-day business loan doesn’t seem like a good fit, consider these quick financing options:
- Business line of credit: Instead of receiving funds upfront, you draw on a line of credit to access funding as needed. You’re usually charged interest only on the amount borrowed, though you may encounter other fees.
- Business credit card: Business owners with strong credit can consider business credit cards. Approval times are relatively fast, making them a good option if you’re in a pinch. If you can find a card with a 0% introductory period, all the better. Just keep in mind that credit limits may be too low to meet your needs. Having that credit card on hand can also tempt you to overspend.
- Invoice factoring: The business owner sells outstanding invoices to a lender for a discounted price, receiving a wave of upfront cash. As the invoices are paid, the lender pockets the money.
- Merchant cash advances: A provider doles out a lump sum of money that’s repaid using a percentage of future sales. For example, the provider may take a cut of your weekly or daily credit card sales to recoup the advance (plus fees). MCAs, however, can be some of the most expensive small business financing.
Same-day business loans are available through many banks and online lenders. Rates, terms, loan amounts and eligibility requirements vary. Shopping around and comparing lenders can help you find the best loan for your business. If all goes well, you’ll have access to your funds before the day is out.