The Ultimate Guide to Emergency Business Loans
Emergency business loans provide relief when your business experiences a disaster, loss of revenue, or another emergency.
These small business loans typically offer fast access to short-term capital when you need it most. In this guide, we’ll break down your top options for emergency business loans so you know where to go for financial assistance.
Best Emergency Business Loan Options
When it comes down to it, you may seek out an emergency loan for your business for a number of reasons. You may have suffered a physical or economic disaster, you might be experiencing a seasonal slow, or you might need to cover unexpected expenses.
Whatever the reason, it’s important to have quick access to capital when you need it. That said, here are some of the best options for emergency business loans:
1. Short-Term Business Loans
Our first option for an emergency business loan is a short-term loan.
Short-term business loans work just like traditional term loans—except they’re much faster to fund—sometimes even the same day you apply. These loans are issued by online, alternative lenders—whose streamlined processes allow them to fund applications much more quickly.
With terms of 18 months or less, short-term business loans are ideal for solving cash flow emergencies, as well as handling one-off, short-term financing emergencies. Compared to bank loans or other long-term products, short-term loans have flexible qualifications, but will also have higher interest rates.
- Higher interest rates compared to other products
- Repayment often daily or weekly instead of monthly
- Fast to fund
- Simple application process
- Flexible qualifications
- Bad credit often acceptable
2. Invoice Financing
If you find yourself in a cash flow crunch because your customers aren’t paying their invoices, invoice financing might be the perfect emergency business loan for you.
When your cash reserves dip to a dangerous level, invoice financing companies can give you cash upfront for your outstanding invoices. Typically, invoice financing companies advance you a certain portion (80% to 90%) of your unpaid invoices and hold the remaining amount in reserve. Once your customers pay up, you’ll get the remaining reserve (minus the lender’s fees).
If you’re in this emergency, invoice financing can help you out in a pinch—the approval process and time to funding tends to be pretty speedy. That said, it can be an expensive way to finance your business, as you’ll only collect a percentage of your invoice value instead of everything your customers owed you.
- Can be expensive
- Fees calculated based on time it takes for invoice to be paid
- Only available for businesses who invoice customers
- Solves cash flow issues that result for unpaid invoices
- Fast to fund
- Unpaid invoices serve as collateral
- Often available for startups and businesses with bad credit
3. Business Line of Credit
One of the most flexible forms of financing, a business line of credit is actually well-designed to help cover emergency situations.
With a business line of credit, you receive access to a pool of funds to draw from when you need capital, and you’ll only pay interest on what you use. And, in many cases, business lines of credit are revolving—once you repay what you’ve borrowed, your credit line resets and you can use it again when needed.
That said, business lines of credit are available from both banks and online lenders—so if you need one quickly, you’ll likely want to find an online lender who can fund your application in just a few days.
If you have more time, on the other hand, a business line of credit from a bank is a great affordable tool to keep in your back pocket for emergencies—and will likely offer a lower interest rate.
- May require a personal guarantee or UCC-lien
- Online lenders will have higher interest rates compared to banks
- Only pay interest on funds that are drawn
- Capital available when needed
- Can keep on-hand if revolving line of credit
- Lower interest rates than term loans of similar sizes
4. SBA Disaster Loans
Finally, if your business needs financial assistance recovering from a declared physical or economic disaster, then an SBA disaster loan may be the best emergency business loan for you.
Unlike typical SBA loans, these low interest, long-term loans are issued directly by the U.S. Small Business Administration and are available to businesses who have suffered damage as a result of a declared disaster.
There are four types of SBA disaster loans:
- Home and personal property disaster loans
- Business physical disaster loans
- Economic injury disaster loans
- Military reservists economic injury disaster loans
The SBA lists currently declared disasters on their website—which can include incidents such as hurricanes, earthquakes, virus outbreaks (like COVID-19), and other natural disasters.
- Slow to fund
- Lengthy and time-intensive application process
- Have to meet specific requirements to qualify
- Need available for businesses with average or poor credit
- Only available in declared disaster situations
- Low interest, long-term loans
- Designed specifically to help businesses suffering as a result of a declared disaster
Where to Get SBA Disaster Loans
As we mentioned, SBA disaster loans are issued by the SBA. Therefore, you have to apply directly with the SBA to get one of these emergency business loans.
That said, in addition to experiencing damage due to a declared disaster, your business will also have to meet certain qualifications based on the type of SBA disaster loan you’re applying for as well.
Use our guide to learn more about how to apply for an SBA disaster loan.
Frequently Asked Questions
The Bottom Line
At the end of the day, if you’re feeling worried after an unexpected hit to your business, just know that there are a variety of emergency business loans that can help you get back on your feet.
Before you rush to any solution, however, make sure you’re committing to the right financing option for your small business. A loan that doesn’t meet your needs or is too expensive will only set your business back even farther.
So, compare your options, evaluate the costs, and weigh the pros and cons in order to find the best emergency solution for your business. And once you get those funds in your bank account, you’re well on your way to the road of recovery.