As we find ourselves in the middle of a global health crisis brought on by COVID-19, there comes a point where protecting physical health comes at the expense of our financial health. Employees at risk of carrying the virus are being forced to stay home. Spending habits have completely changed. The stock market has crashed. The list goes on… But what does this mean for your business? Cashflow is likely to be stretched within any company at this time, particularly within business start-ups. If you don’t have much money in the reserves then how can you keep your business afloat if the worst does happen? Emergency Business Loans can provide a fast source of income for when things don’t go to plan. This sounds great, but what are the risks?
What Are Emergency Business Loans?
Emergency loans can provide a fast source of income to give your business the cash injection it needs during tough times. They are usually granted quickly and you don’t always need a great credit score in order to be approved. But they do often come at a cost, including higher interest rates than a standard loan. Emergency loans come in many forms. These include unsecured personal loans, credit card cash advance loans, payday loans and even pawnshop loans.
Emergency personal loans
The great thing about emergency loans is that they can be processed extremely fast. You can expect to receive an emergency business loan within days of approval. Depending upon your credit score, you might qualify for an unsecured personal loan. This means that the loan will not be secured against any assets, such as property or a motor vehicle. Personal loans usually have fixed interest rates and can be paid back over a set period of time. Before taking out an emergency personal loan, you should first ensure that you will have the funds available to pay it back, otherwise, you will wind up in a worst financial position than you started in, along with your credit history taking a battering.
Emergency cash advance loans
It is possible to use the remaining balance on a credit card to take out as a short-term loan. This will mean a higher interest rate than normal and this rate will also be relative to how much you take out. So be wary of how much you do borrow via a cash advance loan.
Emergency payday loans
Unless you’re expecting an influx in cash in the very near future but are in a desperate and immediate need for cash to tie you over, for the time being, a payday loan is a risky option. APR’s can be as high as 400% and need repaying in full, rather than in instalments. This should be a last resort option. It’s easy to become trapped in an endless cycle of re-borrowing in order to pay the last payday loan off.
Emergency pawn loan
Another last-ditch option here. You can have personal items valued by a pawn broker, of which they will use as security in order to back the loan. Unable to repay the loan? Your item will be listed for sale.
Are There Alternatives to an Emergency Business Loan?
Your personal credit score will not be affected by your business loans. Nonetheless, you still need to submit your personal credit rating. You also need to prove your revenue for a year or two. Banks have tightened their lending criteria in recent times and often require financial history or in-depth account records to assess the capacity of the business to handle their financial obligations. This means that applying for an emergency business loan through a bank can be a tedious, time-consuming process. For this reason, if you need funds fast, then banks aren’t a great option.
Emergency business loans may come at a higher cost for borrowers with no proof of income and a poor credit rating. When this happens, it is advisable to search for other options. Here are two alternatives which could help you establish or maintain your business especially when there is an urgent need for funds:
Do you have a business account with a bank, but don’t qualify for its traditional business loan? You can apply for a line of credit instead. A line of credit enables you to access extra money whenever you need it. This is because they don’t have a fixed term, unlike personal loans. So, you can use it without applying for another loan. You also only pay interest on the amount you have borrowed, not your entire credit limit. However, usually, interest rates are usually variable with lines of credit, meaning that they can fluctuate up or down. You also can’t expect a quick turnaround with a line of credit because it may take weeks before it gets approved. Yet, it can still be a very useful resource for future business emergencies.
Specialised lenders like Australian Lending Centre cater to businesses that do not qualify for traditional business loans. ALC understands that business must continue as usual despite any financial drawbacks.
Considerations Before Taking Out an Emergency Business Loan
If you want your business to keep operating, you need the right funding to pull you out of problematic financial situations. There are also some management decisions that require immediate cash to sustain growth and avoid serious fallbacks.
What are the things to keep in mind when applying for emergency business loans?
Determine the business’s needs and the amount you need to meet it
It is important to have a clear idea of what you really need before you sign the loan application form. It is very easy to lose track of what you intended to do from the start if you don’t have a clear understanding of your needs. Remember that the amount must not be greatly higher than your actual needs. When running a business, it’s important to remember that the costs must be lower than the profit. Otherwise, you will end up spending more than what you actually earned and your business will suffer.
Review your credit history
Have you missed or been late on some of your previous debt repayments? If so, why did it happen? Before you apply for an additional loan, make sure that you have a good budget in place to avoid repeating the same mistake.
Specialised lenders may offer bad credit business loans, meaning they can still approve your loan application despite negative credit history. But reviewing your credit file is good to practise. You may find that there are defaults or judgements which have been incorrectly listed. So, before you send your business loan application, make sure that your credit file is accurate and up to date. Companies such as Clean Credit are able to quickly and easily assess your credit file and repair it if required.
Study your financing options
Specialised lenders may offer better terms than traditional banks, especially if you don’t have a stellar credit rating. Review the company and its loan products, and compare them with other financing institutes. Check if the financing procedures are safe and secure and if you will be able to save more money in the process. It is also important to talk with the loan officer and ask about the details of the loan, including its comprehensive terms and conditions.
Always consider your business plan when applying for a loan – make sure that the amount you borrow and the financing agreement will support your plans. Use every cent you get to support your goals and to build a solid credit history so that you can quickly access business loans with better rates in the near future.
Emergency business loans from specialised lenders are usually approved between 24 hours and 7 days – so it is advised to create a budget before you send in your loan application. Not only will it ensure that you will use the money exactly as you planned, but it will also keep you from defaulting on your loan repayments.