June 11, 2024

The Lowdown on Instant-Approval Small Business Loans

Try as you might, some business expenses — both good and not-so-good ones — can't be anticipated. A good one? The restauranteur across the street is retiring and you can snag his high-end equipment and furnishings for a fraction of the retail cost. An unwelcome one? Your landlord is selling the building; you have a month to find and build out a new space.

Moments like these may call for capital you don't have on hand; but you have borrowing options. For example, you can apply for an “instant loan” from a small business lender. These loans typically do not require collateral, are based on cash flow more than credit scores, and feature rapid approvals and funding — some promise cash in as few as 72 hours.

Want to get started on finding an instant loan? First get up to speed with these fast facts on instant loans. These funding options are:

  • Ideal for sudden opportunities or emergencies. Even the best, most affordable loan from a bank or other conventional lender won't relieve your payroll emergency if the funds won't arrive for six weeks. In cases like this, that instant approval may be the difference between survival and failure.

  • Subject to higher interest rates. Generally, small business lenders who offer fast approval also charge higher interest rates, for two reasons: First, the loan has less time to spur interest for the lender. In addition, fast-approval loan applicants are statistically a higher credit risk. Higher rates ensure a sufficient profit for the lender.

  • Call for less paperwork to fill out. Typical business loans require an extensive application process. Small business loans with approval times tend to require less documentation.

  • Are not as highly regulated as traditional banks. Instant loans are considered alternative lenders, so they're not bridled by traditional bank regulations and documentation requirements. This scenario underscores the importance of using a highly reputable instant-loan lender.

Is an instant-approval small business loan right for you?

As mentioned above, instant loans cost more. However that cost, depending on your needs, is relative. Weigh the higher rate against the cost of missing an opportunity because your financing didn't come through in time.

Let's say you need $250,000 to go forward on a bid you've won that will bring in $2,000,000 of revenue — and you have five days to accept the offer and get to work. A bank loan might have a 7 percent interest rate but comes with a four-week turnaround. In contrast, a fast-approval loan may carry a 14 percent interest rate — but it can fund you in three days. Over one year, that higher interest rate would cost you $17,500 more than the bank loan. But since you can't wait for the bank loan, you may consider the extra expense to be worth it, given the potential rewards.

Choosing and applying for a loan

Before you apply, be sure to take these four steps.

  • Step #1: Gather your business and personal financial documentation, including:

    • Your most recent credit reports

    • Bank account statements — at least one year to show your cash flow trends.

    • Tax returns for the last three years

    • Profit and Loss (P&L) statement

    • Budget and future cash flow projections

    • Business licensing documentation

  • Step #2: Consider how much financing you need, and what type: Do you need a lump sum for a one-time expenditure, or do you want to cover cash flow gaps with a line of credit? The answers will help you choose the right loan type and lender.

  • Step #3 Read lenders' customer reviews and customer service ratings — and consider the source. Stick with major consumer organizations and sites, such as the Better Business Bureau and Trustpilot, as well as major financial news and advice outlets such as Bloomberg and CNBC.

  • Step #4: Establish how long each lender takes to disburse funds, and under what stipulations. Sometimes even 72 hours might be too long, so you have to know what to prepare for up front.

Alternatives to Instant-Approval Financing

Anytime you're considering financing, you should evaluate your alternatives, including these major options:

  • Business lines of credit tend to carry a lower interest rate and a higher limit. But they're harder to get and the application process is time-consuming.

  • Introductory zero-interest credit card offers are great to leverage — but only if you're sure you can pay back the charge(s) in time.

  • Invoice factoring means sell the value of your outstanding invoices at a discount to a factoring company. Factoring requires careful planning, given the cut into your cash inflow.

  • Revenue advance. Get quick cash in exchange for a percentage of your future credit or debit card sales. More sales mean faster repayment—and vice versa. But don't get caught blindsided by being required to get on a specific payment system or other conditions.

When used responsibly, instant loans can be your ticket to growth and prosperity. Just be sure to vet the lender carefully and have a repayment plan firmly in place.

Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.