Guide to Emergency Small Business Loans

By Lauren Ward · May 22, 2024 · 9 minute read

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Guide to Emergency Small Business Loans

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.

What an Emergency Loan Is

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 will distribute them to approved applicants within 24 hours.*
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, 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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6 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. Up to early 2022, the SBA EIDL program offered COVID-19 Economic Injury Disaster Loans. Some of the pandemic EIDL loans may be forgivable, depending on the program.

COVID-19 loans are no longer available, but the SBA can provide up to $2 million to help meet financial obligations and operating expenses following other 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 loan.

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.

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.

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.

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. And 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.

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

5. Business Cash Advances

Rather than being structured as a loan that you pay back, a business cash advance fronts you a lump sum of money based on your business’s credit card sales. The cash advance company then takes a percentage of each card transaction at your business (plus a fee) to repay the loan. There is no set repayment term.

A business cash advance is typically easy to qualify for as long as you’re still making sales during your business emergency. But it comes at a price, mainly in the form of a high factor rate that’s applied to your principal balance and dictates how much above your principal you’ll have to pay.

6. 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 banking account on a regular basis. Payments may be due monthly or as frequently as weekly, which could potentially cause a cash crunch.

Depending on which option you choose, you may also want to prepare to have your cash flow impacted by invoice factoring or merchant cash advances, since both take a bite directly out of your sales.

•  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 Small Business Emergency Funding

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 can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

Get personalized small business financing quotes with SoFi's marketplace.

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?

Recently, many small businesses have used emergency loans to help them through lockdowns and other difficulties caused by the COVID-19 pandemic. Emergency loans can also help with problems like seasonal downturns and surprise expenses. On a more positive note, an emergency loan can also help you finance new growth opportunities when there is a sudden demand for your products or services.

Photo credit: iStock/pixdeluxe

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Small Business Loans
*Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. This funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank's ability to clear a transfer and make funds available.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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