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Finding the right emergency business loan can mean the difference between making it through a difficult time and having to shut your company’s doors for good. Fortunately, there are many options available, each with its own advantages and disadvantages.
Whether you’re coping with supply chain delays, inflationary increases, or a sudden, unforeseen problem with your business, there are ways to get help. Read on to learn about the different types of emergency funding for small businesses.
Key Points
• Emergency small business loans are designed to provide quick access to capital, helping businesses address urgent financial needs.
• These loans often come with fewer restrictions on how the funds can be used, allowing business owners to allocate the money where it is most needed.
• Many emergency small business loans have streamlined application processes, requiring less documentation and offering faster approval times compared to traditional loans.
• Types of emergency loans include SBA emergency loans, emergency term loans, invoice factoring, and more.
• Despite the urgency, some lenders offer competitive interest rates and reasonable terms, making these loans a cost-effective solution for businesses in need of immediate financial support.
What Is an Emergency Business Loan?
An emergency small business loan is financing that helps your company make it through a difficult period that your normal working capital or cash reserves can’t cover.
Your emergency could be a national or regional problem, like a pandemic or an earthquake. Or it could be a problem that’s unique to your business, like uninsured fire damage or a flood in your storeroom.
Emergency loan products may be available in different types of loan structures, and eligibility requirements may differ among lenders. But you should be able to use the funds to repair damage, to replenish stock, and/or for normal operating costs, like paying your employees.
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Pros and Cons of Emergency Loans for Businesses
Pros
Compared to other types of loans, an emergency business loan requires far less documentation when you apply. If you seek an emergency loan online, some lenders may even approve and distribute funds within one to three business days.
Small business emergency loans come with a variety of terms. You may be able to pay back the money over several months to several years.
Cons
Most emergency loans are unsecured business loans, which means you may have to meet rigorous criteria in order to get approved. This can be difficult if you haven’t been in business for long.
Interest for an emergency loan might be higher than it would be for a long-term loan. Also, this is a place you may find predatory lenders, so exercise caution.
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5 Types of Emergency Loans Used for Businesses
Different types of small business financing come with their own specific pros and cons. The best choice for you depends in part on the type of emergency your business is experiencing. Get to know some of the most common options out there to make the right choice.
1. SBA Emergency Loans (EIDLs)
The SBA offers Economic Injury Disaster Loans (EIDL) to help small businesses face financial challenges that wouldn’t have arisen if not for the disaster. With an EIDL, the SBA can provide up to $2 million to help meet financial obligations and operating expenses following certain types of disasters. The loan amount will be based on your actual economic injury and your company’s financial needs, regardless of whether the business suffered any property damage.
If you need the money right away, SBA Express Bridge Loans are also available to help business owners quickly obtain up to $25,000. To apply, however, you do need to have a relationship with an Express Lender already. This temporary financing serves as a bridge loan and should be repaid with an EIDL.
2. Emergency Term Loans
A term loan comes with a fixed interest rate and a set term length during which you repay your balance plus interest, usually in monthly payments. There are many sources for term loans, including traditional banks and online lenders.
Traditional Banks
A traditional bank may take longer to approve your loan, which can be a problem when you’re experiencing an emergency. But you may have a better chance for approval if you already have a relationship with the lender.
Online Lenders
A short-term loan offered by an online lender, in particular, may help you get cash quickly when your business is suffering from an emergency.
3. Emergency Lines of Credit
A business line of credit is different from a term loan because it can actually help you prepare in advance for a financial emergency. A business line of credit is similar to a credit card in that you draw on funds as you need them instead of getting a lump sum.
There’s generally a limit to how much you can draw at a time, but interest doesn’t accrue until you actually borrow funds. You may be subject to a variable interest rate when you start making payments, depending on the terms of your line of credit.
A line of credit works best as emergency funding if you already have it in place before the emergency hits. If your business’s finances tank, it’s hard to get approved for new funding. But if you apply for a line of credit when things are good, you can wait to take out funds until you truly need them. One drawback, however, is that some lenders may charge a maintenance fee.
4. Personal Loans
A personal loan is often easier to qualify for than a business loan. That’s because a personal loan application only asks you to prove your personal ability to keep up with the payments. For a business loan, however, your entire business may be evaluated. Plus, many lenders provide quick decisions and fund disbursement, so you can access the money fast.
Of course, there are a few downsides. Personal loans typically have lower limits than business loans, and your offer will be based on your income and other debts. You also put your personal finances and credit at risk when you use the funds for your business.
And finally, personal lenders may have restrictions that prohibit you from using their loans for business purposes. Be sure to check for limitations like these as you compare personal loans.
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5. Invoice Factoring
Companies that take in payments through invoices rather than credit card transactions may consider invoice factoring as a way to raise emergency funding. Here, you sell unpaid invoices to a factoring company and receive a percentage of those invoices’ face value upfront from the factoring company.
Invoice factoring also means you have to turn over the invoice collection process to the factoring company. When it collects the full amount owed from a customer, it pays you the balance remaining after the initial percentage it already paid you, minus the factoring company’s fee.
Because the invoices serve as collateral, your business may be better positioned to qualify for this type of financing even when you’re experiencing a financial emergency. In addition to high fees, however, you may also not like someone else managing your customer relationships.
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What to Consider with Emergency Funding for Small Businesses
No matter what kind of emergency financing you’re looking at for your small business, be sure to understand the short- and long-term implications of each offer.
• Compare the total cost: Look at how much it will cost you to borrow, including interest rates and fees.
• Scrutinize how repayment works: Some lenders require you to enroll in an auto draft program that deducts money from your business bank account on a regular basis. Payments may be due monthly or as frequently as daily, which could potentially cause a cash crunch.
• Consider timing: How long will it take to apply for and get your funding? Different emergency business loans proceed at different speeds. If getting funds fast is your priority, you may be limited to higher-cost solutions.
Tips for Applying for a Small Business Emergency Loan
If you’re wondering how to get a business loan during an emergency situation, try these tips to navigate the process more easily.
Calculate how much financing you need. Apply for the right amount so that you don’t have to worry about needing more money later on. Many lenders allow only one loan at a time, so you may be better off requesting the maximum amount you’ll need. That way, you don’t have to apply with multiple lenders at different points in time and face multiple payment schedules.
Factor in not only one-time costs to get you through a short-term emergency, but also working capital you may need for the longer term.
Pick the right loan. Review eligibility requirements for different emergency small business loans to see which you seem likely to qualify for. Then narrow your list based on pros and cons, including the costs involved.
Be ready with financial documents. Each type of emergency business financing comes with its own application requirements. Expect to submit things like:
• Bank statements for both your business and personal finances
• Tax returns for both your business and yourself
• Business-related legal documents
• Revenue statements
• Accounts payable and accounts receivable
Finding a Business Emergency Lender
Once you understand the options for emergency business funding and the implications for each one, it’s time to take action.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What are emergency loans?
An emergency loan for business is financing that helps you make it through a difficult period that your normal working capital or cash reserves can’t cover. Emergency funding may be available in different types of loan structures, and eligibility requirements may differ among lenders.
Where can I get emergency money?
Check with a variety of sources to compare your options for emergency money for your business. Avoid taking the first offer you receive without looking around, since there may be other loan products out there that fit your needs better. You may be eligible for SBA funding, or you may want to look at online lenders. Other options to explore include personal loans, invoice factoring, and merchant cash advances.
What can emergency loans be used for?
Emergency business loans can be used to cover urgent expenses that keep your company running. Common uses include paying payroll, rent, or utilities, repairing essential equipment, managing unexpected inventory costs, addressing cash flow gaps, covering medical or disaster-related damages, or funding short-term projects to stabilize business operations quickly.
How fast can I get approved for an emergency small business loan?
Approval for an emergency small business loan can happen quickly, especially with online lenders. Some approve applications within 24 hours and fund the loan in one to three business days. Timing depends on your lender, credit profile, loan amount, and how promptly you submit the required documentation.
Do emergency business loans affect credit?
Yes, emergency business loans can affect your credit. Lenders may run a hard credit check during application, which can temporarily lower your score. Once funded, timely payments can help build positive credit history, while late or missed payments can harm your business or personal credit, depending on loan terms.
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