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Types of Emergency Business Loans

Emergency business loans can be structured in different ways. The right option for you will depend on a range of factors, such as why you need finance, how quickly you need it and your business qualifications.

Business Term Loans

Business term loans are available from traditional and online lenders. Banks and credit unions can usually offer loans with the lowest rates and longest repayment terms, but they are not always the most suitable option for emergency financing.

Not only can bank loans be difficult to obtain, they are also notoriously slow to fund and require lengthy and cumbersome document applications. If you need an emergency business loan quickly, some online lenders can fund applications within the same day, and most within a few business days.

Online lenders generally have simple, streamlined application processes and more flexible qualification requirements. As a result, online emergency business loans will have shorter repayment terms and higher interest rates.

In some cases, you might be willing to pay a little more for faster access to the funds you need. However, you still need to make sure that you don’t take on high-interest debt that would make it more difficult to take over your business in the long run.

Lines of business credit

A line of credit allows you to tap into a set fund limit and only pay interest on the portion of the money you borrow. Business lines of credit are one of the most flexible types of business financing, making them a good option for urgent working capital needs.

Like term loans, commercial lines of credit are available from traditional and online lenders. Banks generally have the lowest interest rates on lines of credit, but online lenders can offer quick funding and flexible eligibility criteria.

Commercial lines of credit may have lower maximum funding amounts than term loans, but they often have renewable terms. That means you can keep pulling the line as long as you make your payments on time and don’t go over your credit limit.

Factoring invoice

Invoice factoring can help business owners who need emergency financing by giving them access to capital tied up in unpaid invoices.

With invoice factoring, you sell your unpaid invoices to a factoring company at a discounted price. The company pays you a percentage of the invoice upfront and takes responsibility for collecting payment from your customer. Once your client reimburses the factoring company, you receive the remaining amount of the invoice, minus the company’s fees.
Invoice factoring is usually available from online lenders or fintech companies. Since factoring companies prioritize the value of your invoices and the payment history of your customers, this emergency business loan can be easy to obtain and quick to finance, but can be expensive, especially if your customers are late paying their invoices.

Cash Advances to Merchants

With a merchant cash advance, or MCA, a company provides you with a lump sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee. In many cases, your MCA provider will automatically take a daily or weekly percentage of your sales until the advance is paid off.

Merchant cash advances are usually quick to fund – sometimes as fast as 24 hours – and easy to obtain. Many MCA providers can work with startups and businesses with bad credit and require minimal documentation during the application process.

MCAs are also one of the most expensive types of business financing. These products can have annual percentage rates of up to 350%, making it difficult for business owners to repay what they have borrowed.

As a general rule, you should consider all other loan options before a merchant cash advance, especially if your business is already trying to deal with an emergency.

SBA Disaster Loans

The federal government offers emergency business loans through the US Small Business Administration. The SBA disaster loan program includes four types of loans to accommodate different scenarios:

  • Real estate and personal loans. Replace or repair your home or personal property after a disaster.

  • Physical disaster business loans. Replace or repair company assets, such as machinery, equipment, facilities or inventory, after a disaster.

  • Economic Disaster Loans. Help businesses meet financial obligations and operating expenses that they would typically incur in the absence of a disaster.

  • Injury loans to military reservists. Helping businesses with operating expenses because an essential employee has been called to active duty.

With the exception of the military reservist injury loan, you can only apply for an SBA disaster loan if your business is located in a declared disaster area.

If you can qualify, these government emergency business loans offer low interest rates and long repayment terms. You can apply online through the SBA website, but keep in mind that the process takes several weeks.

How to apply for an emergency business loan

Assess your financing needs

If your business has been through a crisis or needs funding to deal with an emergency, you will want to take more time to understand your financial situation. You should think about how much financing you need, how much debt you can afford, and what type of loan would be best for your situation.

It can also be helpful to write a plan that details exactly how you plan to use your capital – that way you know how those funds will help you meet your immediate needs and how your business can continue in the future.

Check your qualifications

If you are considering an SBA disaster loan, you must confirm that your business falls under the stated disaster loan and verify that you meet any additional SBA loan requirements.

Research and compare lenders

When looking for emergency business loans, you should compare several lenders to find the one that best suits your needs. You will need to consider factors such as interest rates, repayment terms, loan amounts, speed of funding, application process and reputation.

Although speed may be a priority in an emergency, keep in mind that fast business loans can often carry higher interest rates. You’ll want to make sure you can afford any debt you incur.

You should also be wary of lenders who push the speed of their process without transparency or guaranteeing approval. These may be predatory lenders trying to take advantage of your need for emergency funds.

It can be helpful to read online lender reviews or talk to past customers to check a lender’s reputation.

Complete and submit your application

Your application process will vary depending on the lender you choose. If you opt for an online lender, however, the process should be fairly straightforward.

You will complete a simple application and provide basic documentation, such as:

  • Business and personal bank statements.

  • Corporate and personal tax returns.

  • Business financial statements.

Find the right business loan

The best business loan is usually the one that offers the lowest rates and the most ideal terms. But other factors, like funding time and your company’s qualifications, can help determine which option you should choose. NerdWallet recommends compare small business loans to find the best one for your business.