Business owners require capital to start and grow their companies — and occasionally they need that funding right away. To close a gap in cash flow or jump on a fleeting business opportunity, some owners will take out same-day business loans. Let’s take a closer look at what the varieties of same-day loans are, what they require, and how to get one.
Key Points
• Quick access to capital allows businesses to swiftly address opportunities or cash flow issues.
• Same-day loans include options like short-term loans and merchant cash advances.
• Lenders may require a minimum credit score and bank statements.
• The application process involves selecting a loan type and comparing lenders.
• Benefits include quick approval and flexible use of funds.
What Are Same-Day Business Loans?
Same-day business loans are those that are approved and available within 24 hours, as the name suggests. This is a much shorter turnaround time than most types of business loans. Some lenders have streamlined their approval processes for same-day loans to require less-extensive paperwork.
Types of Same-Day Business Loans
Short-term loans, lines of credit, merchant cash advances, and invoice financing are all commonly used for same-day business funding. The terms and conditions tend to differ from those of regular small business loans. The details of these four same-day options will help you identify which kind of instant business loan best meets your needs.
Short-Term Loans
Term loans require the borrower to make regular, fixed payments on a set schedule. Short-term business loans often call for repayment within 12 months or less, though some may last up to 24 months. A short-term business loan may or may not require collateral.
Business Lines of Credit
A business line of credit, like a credit card, enables the borrower to spend the available funds at any time. Repayment terms are flexible: A business can take money out, repay it, and borrow again, as often as necessary.
Merchant Cash Advances
A merchant cash advance is a type of short-term loan. The lender advances a lump sum to a business, with repayment conditions based on a percentage of future sales. This type of loan can be funded quickly, but be aware that its interest rate can be significantly higher than other forms of financing.
Invoice Financing
This arrangement enables a business to borrow money against invoices — that is, against the outstanding balances due from its customers. Typically invoice financing is meant to help a business with its cash flow while it pays its employees and suppliers. One type of invoice financing, known as invoice factoring, involves selling your unpaid invoices to a third party that collects its money from each bill when it’s paid.
Who Qualifies for Same-Day Business Loans?
Requirements for same-day business loans will vary by lender. Most will have a minimum credit score that could be as low as 500, but is often 600 or higher. Some lenders that offer same-day business funding may want to look at several months of bank statements, while others may also consider a business’s outstanding invoices.
Advantages of Same-Day Business Loans
The primary attraction of instant business loans is their speed. When a lucrative deal presents itself, quick access to capital may allow a business to place orders right away and start meeting demand for its goods and services.
Another advantage of same-day business loans is the lack of paperwork. While a long-term business loan could take weeks or months of preparation, you can often apply for a same-day loan in minutes.
A same-day business loan can also offer flexibility, in that your company is permitted to use it for any purpose. In contrast, many long-term business loans are only approved for specific uses.
Potential Drawbacks
Same-day business loans have drawbacks as well. For example, same-day business loans often have higher interest rates and fees, to account for the lender’s increased risk of loss. A same-day loan will also have shorter repayment terms. And if a business uses multiple short-term loans — potentially to pay off existing ones — it risks getting caught in a debt cycle that can be difficult to resolve.
How to Apply for a Same-Day Business Loan
Applying for a same-day business loan can be quick, but you’ll still need to take some time to prepare your application. You’ll want to select the right type of loan for your needs, and then shop around to find the best combination of rates, terms, and fees that you can qualify for.
Then you’ll need to gather the required documentation. This can include your bank statements, profit and loss statements, and even your outstanding invoices.
But once you’ve filled out the application and provided the required documentation, you should get a decision within hours.
Alternative Financing Options for Businesses
It’s easy to apply for instant business loans, but there are other possible sources of short-term capital to bear in mind as well.
A small business credit card lets you access funds and gives you a secure, convenient repayment method. Small business credit cards are approved based on the applicant’s personal credit history and other qualifications, meaning that the primary cardholder is always responsible for repayment. Some small business credit cards will offer up to a year of interest-free financing on new purchases, and nearly all cards will offer a grace period in which interest can be avoided if the statement balance is paid in full.
For longer-term financing at lower interest rates, traditional bank loans are also available to small businesses. In particular, business owners may want to approach the U.S. Small Business Association (SBA). The SBA backs small business loans that are provided by designated lenders who approve and manage their loans. It facilitates 7(a) bank loans for various business purposes.
Your company may qualify for 504 loans, fixed-rate financing for major assets provided by community-based, nonprofit SBA Certified Development Companies regulated by SBA. The agency also arranges microloans of $50,000 or less for businesses and certain childcare centers.
Best Practices for Using Same-Day Business Loans
Because same-day business loans can be easy to obtain, it’s crucial that business owners keep in mind a few best practices for handling that money.
First, it makes sense to only get a loan for the amount you actually need. Overborrowing will lead to higher payments over the life of the loan, forcing you to spend money your business may need elsewhere.
Once you have the loan, it’s important to make your payments promptly. Short-term loans typically have high interest rates and fees that can be extremely costly if you miss a payment.
The best way to avoid late fees and other penalties is to set up automatic payments. Autopay helps you increase the amount of your monthly payments to the maximum you can afford. Making larger payments will enable you to pay off the loan sooner, thereby saving money on interest charges.
If you find yourself unable to pay off the same-day loan early, you may want to add some long-term financing. Long-term business loans at lower interest rates can save you money if you use the principal to pay off your higher-interest short-term loans.
The Impact of Same-Day Loans on Business Credit
As with any lender, your same-day loan provider is likely to supply balance and payment information to the major consumer and small business credit bureaus. During the repayment phase of your same-day loan, owing a large amount may temporarily lower your business’s credit score. When you make timely payments on your loans, though, it’s likely to help your business credit rating. Successfully paying off your debt will add positive information to your business credit report.
The Takeaway
Same-day small business loans often help companies meet urgent business needs in the short term. If you’re considering one, start by calculating how much debt your business can afford to take on. Then figure out which instant business loans might work best for your company by comparing the lenders’ rates, terms, fees, and turnaround time.
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.
Photo credit: iStock/wutwhanfoto
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