Emergency Small Business Loans & Funding Explained + Best Options

Due to the rapid onset and economic changes caused by the novel coronavirus, many small businesses are searching for emergency business loans. Thankfully, there’s no shortage of support out there. Federal and state governments as well as banks and private institutions have already increased their offerings for low interest loans.

However, if you’re worried that you won’t qualify for a business loan, you can leverage alternative options like grants, invoice factoring, and even your current line of credit.

Here are some of the best options for emergency capital right now, as well as some alternative resources that can be accessed in any circumstances.

The best options for emergency capital right now

For businesses hoping to keep their doors open and cover operational costs (like payroll), emergency loans are the most viable option.

SBA Disaster Loan

The Economic Injury Disaster Loan program (EIDL) by the SBA is most likely the best option for businesses in need of emergency funding, due to its high limit and low interest rates.

SBA Disaster Loans Terms and Rates

Eligible Businesses

Small businesses and private non-profits

Max Borrowing Amount

$2,000,000

Term Lengths

Up to 30 years

Interest Rates

3.75% (2.75% for non-profits)

Fees

N/A

Keep in mind that in order to

Qualify for an SBA Disaster loan, businesses must not have access to other capital. Apply here; if you have trouble accessing the website, try it during off-peak hours (7pm to 7am EDT).

WaFd Bank

Washington Federal Bank (WaFd) has one of the most compelling emergency loans offers available right now, offering a line of credit up to $200,000 with expedited approvals. Apply now

WaFD Bank Small Business Lifeline

Eligible Businesses

Businesses that have seen greater than 10% drop in revenue due to COVID-19

Product type

Line of credit

Amount

Up to $200,000

Rate

0% for 90 days; adjusted to market rates afterward

Approval time

Expedited for lines up to $30,000

Regional availability

AZ, ID, OR, NM, NV, UT, WA, Dallas/Austin TX

US Bank

US Bank is offering two special financing options for businesses affected by COVID-19: the US Bank Quick Loan and the US Bank Cash Flow Manager. The Quick Loan has a more traditional loan structure, while the Cash Flow Manager functions as a credit line.

US Bank Quick Loan

Eligible Businesses

Apply for approval

Product type

Loan

Amount

$5,000 to $250,000

Rate

2% lower than the business’s qualifying rate

Approval time

12 to 84 months

Regional availability

AR, AZ, CA, CO, FL, IA, ID, IL, IN, KS, KY, MI, MN, MT, NC, ND, NE, NM, NV, OH, OR, SD, TN, UT, WA, WI, WY

US Bank Cash Flow Manager

Eligible Businesses

Apply for approval

Product type

Line of credit

Amount

$10,000 to $250,000

Rate

1% lower than the qualifying rate

Regional availability

AR, AZ, CA, CO, FL, IA, ID, IL, IN, KS, KY, MI, MN, MT, NC, ND, NE, NM, NV, OH, OR, SD, TN, UT, WA, WI, WY

In addition to these specific programs, US Bank told USA Today that it is “reactively waving credit card fees” and that they are “working to enhance skip-a-pay and payment deferral programs.”

US Bank’s financial hardship assistance, that includes increased credit limits and waived fees, continues to be offered.

Other lenders

Though not every lender is offering coronavirus-specific assistance, many are still actively making loans or offering financial products that can help small businesses with cash flow. These lenders include Kabbage, OnDeck, FundingCircle, BlueVine, and Fundbox.

Kabbage’s HelpSmallBusiness initiative can also help businesses that have been forced to temporarily close their doors, by allowing them to offer gift certificates online, and accept payments using those gift certificates later using Kabbage Payments.

In addition, services like Lendio and Fundera can aggregate business information and apply to many loan options at once, saving you time from sending in many separate applications.

When to consider emergency business funding

If your business has been put at risk due to an acute circumstance beyond your control, then it’s a good time to consider emergency business funding. The coronavirus pandemic—and the forced lockdowns ordered by many governments—is a relevant example, but emergency business funding is also available to organizations that have been impacted by other events like earthquakes, floods, hurricanes, and other rare events.

Advantages and disadvantages of emergency loans

There are several advantages to emergency loans:

Quick processing time: Institutions may try to speed up the application and approval process in order to meet the urgent needs of businesses.
Low interest rates: Reputable institutions are highly sensitive to the appearance of exploiting difficult circumstances, so businesses that are struggling will often get low interest rates with emergency funding.
Tailored to needs: Often, banks will set up case-by-case offers recognizing that businesses are hit in specific ways, so there may be options available that are not advertised. Check out our current list of bank adjustments to address COVID-19.

Some disadvantages exist as well:

Loans, not grants: Financial institutions offering capital tend to structure offers as loans that must be repaid. For businesses in need of emergency funding, temporary relief can help, but the business will need to get back on its feet by the time payments are coming due.
Geographically specific: Many offers are from regional banks, that may only be able to provide assistance to businesses in their area.
Not immediate: Though processing time can be expedited, access to funding will almost never be available same-day.

Types of emergency business loan and other funding options

Many small businesses are searching for emergency funding due to the rapid onset of economic changes caused by the novel coronavirus.

Here are some of the options you might consider if your business is feeling the strain.

Type of funding

Time to funding

SBA disaster loans

1-3 weeks

Term loans

1-4 weeks

Business line of credit

2-7 days

Bridge loans

2-7 days

Invoice factoring

2-5 days

Merchant cash advance

1-3 days

Small business grants

1-2 weeks

Business credit cards

1-2 weeks

SBA disaster loans

As referenced above, SBA disaster loans are provided by the Small Business Administration during times of physical or economic emergency. These loans tend to be low-interest and are processed relatively quickly (within 1-3 weeks) in order to provide bridge funding to businesses affected by acute circumstances beyond their control.

There are four main considerations for an SBA disaster loan:

Location: Operate a business located within a federally declared disaster zone.
Credit score: The SBA will run a routine credit check, but also evaluates factors such as recent income and payment history.
Collateral: For loans larger than $25,000, the SBA will require some form of collateral (e.g. business property).
Repayment: Repayment schedules are crafted on a case-by-case basis .

Keep in mind—these loans are designed to be as accessible as possible, so don’t be afraid to apply and work with the SBA, even if you have bad credit or lack of collateral.

Emergency bank loans

Business bank loans are the more traditional choice of lending in fair weather, but can also be considered in emergency environments.

Tested financial institutions, like banks, can typically offer lower interest rates and longer repayment terms. However, they also have stricter lending criteria, meaning that new or unprofitable businesses may not qualify.

Term loans

A business term loan is the traditional lending process for banks—think mortgages, student loans, and car payments. You borrow a sum of cash upfront, then pay back that amount plus interest over a certain period of time, or “term.”

For businesses, term loans can carry interest rates as low as 6% (though they can also go much higher). Because the application process can be lengthy (requiring weeks or even months), these may not be the fastest emergency option.

However, if you’ve been in business for a while, have good credit, and are generating revenue, there’s a chance you could be approved in a couple of days.

Business term loans

Pros

Cons

Trusted lenders
Fixed interest rates
Applicable to any business purpose

Rigid repayment structure
Slower to fund
May require collateral

You can pursue a business term loan from almost any financial institution, but there are also online

Providers available. Online term loan providers include Credibility Capital, OnDeck, and StreetShares.

Business line of credit

If you’re looking for a funding source that feels more like a credit card than a traditional loan, a business line of credit could be a great option. Revolving lines of credit can be pursued from traditional banks or alternatives lenders and act very similarly to credit cards.

Typically, line of credit lenders will approve you for a certain credit amount over a certain period of time. During that time, you can access your line of credit as much or as little as possible. As you pay off your balance, your credit becomes available to use again—and you only pay interest on the amount you’re currently using.

Business line of credit

Pros

Cons

Only pay interest on what you use
Credit becomes available again as you pay if off
Withdraw in any increment needed
Approval in a few business days

Collateral required for secured lines; Higher rates for unsecured
Fees vary by lender (withdrawal fees, maintenance fees, etc.)

Business lines of credits are offered at most traditional banks; online providers includ

e Kabbage and LendSpark.

Emergency bridge loans

Bridge loans are a kind of temporary financing intended to cover capital shortfalls until a company secures more permanent funding or recovers from unforeseen circumstances. The most common types of bridge loans include operating and mortgage loans, though they can also be used to allow businesses to make quick moves like strategic acquisitions.

As bridge loans are short-term, small businesses may be able to qualify more easily. However, they do tend to carry higher interest rates.

In the case of emergency, federal and state governments often offer bridge loan funding to small businesses, in addition to other loan programs. For example, due to the current impact of COVID-19, the SBA launched the Express Bridge loan program and states like Florida are doing the same.

Invoice factoring

Invoice factoring is a method of turning your unpaid customer invoices into fast cash. In this kind of emergency funding, you sell your invoices to a factoring company who in turn pays you an advance on your invoices.

Typically, invoice factoring companies will pay out in two installments: 1. An advance of 70-90% of your invoice at point of contract and 2. The remaining % of your invoice minus any fees after the customer has paid the invoice.

Invoice factoring

Pros

Cons

Fast funding: You can usually set up funding within a few days
Easy approval: Your existing invoices are enough to get approved
Flexible terms: You can offer your clients more flexible terms than you might be able to when you’re dependent on their payments

High costs: Usually there’s a factoring fee of about 3% (plus termination, monthly minimums, etc.)
Loss of control: Invoice factoring companies negotiate with your clients on your behalf, so it’s imperative that you find a company that reflects your customer success values

Popular options for invoice factoring companies include

BlueVine, Breakout Capital, and Fundbox.

Note: Invoice factoring is sometimes confused with invoice financing. The primary difference between the two is that in financing, you don’t sell your invoices, but instead use them as collateral to qualify for a loan or line of credit. In addition, you maintain responsibility for chasing payments from customers.

Merchant cash advance

A merchant cash advance, like some of the other funding options we’ve explored, is not truly a loan. Rather, merchant cash advance (MCA) providers give you an upfront sum of cash in exchange for a slice of future sales.

MCAs do not have traditional interest rates, but work from factor rates instead. Your total repayment (plus fees) is determined by multiplying the advance received by the factor rate. For example, if you received a MCA of $20,000 at a factor rate of 1.5, your total repayment would be $30,000.

Merchant cash advances are typically repaid one of two ways. In traditional MCAs, you payback the advance as a percentage of your debit or credit card sales. Payments are withdrawn directly from your credit card revenue, in partnership with your credit card processor. You may also set up your MCA as a ACH withdrawal, wherein MCA providers remit a fixed daily or weekly debit from your bank account.

In either case, MCA repayment periods tend to be short term (24 months max) and have high rates (because of fluctuating sales schedules, APRs often run in the triple digits). While merchant cash advances can be an easy way to get some quick cash, NerdWallet advises that you consider MCAs “a financing option of last resort.”

Merchant cash advance

Pros

Cons

Low barrier for approval
Quick turnaround (a day or two)
No collateral required
No absolute repayment
If sales are down, so are repayment amounts

Higher sales mean higher APRs
Rigid repayment schedules (daily or weekly)
No benefit to early repayment
No federal oversight
Can lead to debt-cycles

Popular providers for merchant cash advances include

National Funding, CAN Capital, and Fora Financial.

Emergency small business grant programs

Almost any business can access funding through small business grant programs. The Small Business Administration regularly delivers grants to companies involving research and development, exports, and veteran mentorship (learn about SBA grants here).

Grants.gov is another go-to resource for accessing funds from federal grants. Depending on your company size and industry, you may be able to find grants specific to your business. For example, grants are often available to minority business owners and technology companies.

In times of true emergency, state and local governments frequently offer grants to small businesses. Even private companies have been known to do the same. For example, Facebook is currently offering $100M in cash grants and ad credits to small businesses affected by the coronavirus.

Business credit cards

While business credit cards may not seem like the knight-in-shining-armor solution to your emergency capital problems, when leveraged correctly, these lines of credit can be a great boon to your business.

If you have a strong personal credit history, it’s relatively easy to get a business credit card for your small business. Business credit cards are known for offering competitive rewards, though some come with annual fees. Search out free credit card solutions, like Divvy, in order to save money in times when funds are tied-up.

If you’re an established business credit card holder, you may also be able to negotiate with your current provider to increase your lending limit or adjust your payback schedule. With a good history of repayment, most lenders will be willing to work with you.

What to consider when applying

You may be looking at your cash flow statement and wondering how you’re going to make it, but remember, this is no time to panic.

It’s important to weigh all your options carefully, calculate how much you actually need to survive and how much you can actually afford. Talk to your financial advisor, accountant, or bank representative, and see if you can find any wiggle room. All in all, just be sure to do your research so you only commit to the best financing option for your small business.