Fast Business Loans: The Top Pros and Cons You Must Consider
The good news is there are fast business loans at your disposal. A fast business loan is just what it sounds like; it’s a loan that you can get access to in a quick and easy application process.
In this blog post, we’ll take a closer look at the pros and cons of fast business loans so you can decide if they make sense for your situation.
How Long Do Fast Business Loans Take?
There are numerous lenders that offer fast business loans. Most of them are online lenders that allow you to apply online from the comfort of your own home or office. While each lender works differently, many will approve you for small business financing instantly or the same day you apply.
Once approved for a loan, you can receive your business loan amount within 24 hours or a few business days. However, this will depend on the lender. In most cases, the funds will be distributed via direct deposit, so you don’t have to go somewhere to pick up a prepaid card or wait for a check in the mail.
The Pros of Fast Business Loans
There are several advantages you can enjoy as a small business owner if you opt for a fast business loan such as:
1. Easy Application Process
Applying for quick business loans is usually straightforward. Typically, the application will be relatively quick to complete. In addition, you may be asked to provide a few bank statements, so have those ready to ensure a quicker process.
2. Fast Funding
The most obvious benefit of this type of business loans is fast funding. You can receive money quickly and pay for any business expense you’d like to.
3. Lenient Requirements
If you don’t have the best business or personal credit score or don’t meet the time in business requirement that other lenders have, you may still get approved for a fast business loan. Most lenders that offer them are willing to take a chance on borrowers and are therefore flexible with their requirements.
4. No Collateral Necessary
Most fast business loan lenders will approve you for financing even if you don’t submit collateral. This means you don’t have to secure your loan with collateral like your commercial property or equipment and risk losing it if you default.
The Cons of Fast Business Loans
Fast business financing seems like a great option. You apply for a loan, get approved, and receive the money you need in minutes, hours, or days. The reality, however, is that as with all financial products, there are some drawbacks of fast business loans including:
1. Limited Lenders
Fast business loans aren’t available everywhere. Due to this, you’ll have to do your research to find lenders who offer them. Note that it’s unlikely to get a fast business loan from a bank or credit union. They are typically offered by online lenders.
2. Higher Interest Rates
In exchange for a fast business loan, your lender may charge you higher interest rates. You may be able to secure lower rates with traditional small business loans, especially if you have a good credit score.
It’s not uncommon for lenders to require borrowers to pay for origination fees, prepayment fees, and other fees. These loan fees can add up quickly and increase the overall cost of your loan.
4. Low Borrowing Amounts
If you need to cover a significant expense like a commercial vehicle or large piece of equipment, for example, a fast business loan may not work. Most fast business loans come with lower borrowing amounts than those of traditional loans. You may only get approved for a couple hundred or thousand dollars.
5. May Lead to Debt
Since fast business loans are easy to qualify for, you may be tempted to borrow more than you need to. However, this can lead to a cycle of debt that will hurt your business in the long run. If you already have credit card debt or other outstanding balances, you should be especially careful before taking out a loan.
4 Tips to Find a Fast Business Loan
If you determine that a fast business loan makes sense for your situation, follow these tips to find the ideal option.
1. Shop Around
Fast business loans vary from lender to lender. Do your research and find the various lenders that offer fast business loans.
2. Compare Business Lenders
Once you’ve found a few lenders, compare their loan options. Look at factors like interest rates, fees, borrowing limits, and requirements. In addition, determine if they offer other funding options, such as merchant cash advances or lines of credit. These products may be a better fit for your business.
3. Make a Decision
Select the lender with the best loan offer for your unique business and budget. Remember, a loan that works for your friend’s business isn’t necessarily the right financing option for yours.
4. Clarify Terms
If you have any questions about the repayment terms in your loan contract, ask the lender. Be sure you understand all the costs involved.
Conclusion: Be Cautious with Fast Business Loans
Fast business loans are ideal if you can’t wait for additional working capital. However, even the best quick business loan options have some disadvantages that could hurt your business in the long run.
Before you move forward with a fast business loan or business line of credit, make sure you understand the ins and outs of your contract. Become familiar with your interest rate and any fees so that you don’t face unwanted financial surprises down the road.
Editor’s Note: This post was updated for accuracy and comprehensiveness in December 2021.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.