Business Loans
A Guide To Small Business Loans For Minorities
Managing crises is all part of owning a business. Whether you're facing natural disasters, personnel problems, tech crises, organizational collapse, or financial issues, if you're the owner, you're the one who has to play hero.
Crisis can come in many forms: you might run out of inventory or lose power at the office, a critical member of your team may unexpectedly quit, a competitor might set up shop across the street, or a global pandemic may close your business for months and change the entire economy of your country. You have to be ready for it all.
However, you can't just outsmart or muscle your way through every crisis. Sometimes, you're going to need cash to solve the problem-and a lot of it. If you don't have capital sitting in your bank account, you're going to need to turn to an emergency business loan to get you out of a bind.
If you're not sure where to look for an emergency business loan, we've got you covered. Below, we'll walk you through five tried-and-true financing strategies to get your business quick access to the cash needed to put out the fire so you can get back on your feet.
But first, it may help you get ahead of your financial needs by taking a closer look at your business's cash flow.
Start by looking at your business's cash flow. If you have positive cash flow, you may already have enough money to cover the cost of your crisis without falling behind on upcoming payments. However, if cash is tight, you may need to shuffle things around.
To increase your cash flow, you either need to delay outgoing payments or expedite incoming payments. Asking clients to pay you on a shorter timeline than you agreed upon may be tricky, especially if you don't have a longstanding relationship with them.
If you have a good relationship with your suppliers, try asking them for a payment extension. Call your contact person to explain the situation, request a later payment date, and negotiate interest.
Keep in mind that this option only works if you know you'll have enough funds to pay what you owe (plus interest) at a later date. It's critical to remember that if you think there's even a slight possibility your business might still be struggling with cash flow after the crisis, it's best to look elsewhere for money.
With that in mind, emergency business loans could be your best option. If you can't follow through on your promise to a supplier, you risk damaging the relationship and creating more significant problems in the future. Fortunately, you have plenty of options when it comes to securing immediate financing.
However, don't forget that quick financing is expensive financing. The earlier you can get ahead of the game and predict your financial needs, the sooner you can secure a less expensive loan.
A business credit card can be a great financial tool for weathering a crisis or recovering in its wake. Depending on your credit limit, you could purchase inventory, hire extra help, make repairs, and make debt payments with your credit card.
However, when using this method, it's crucial to avoid getting into a cycle of using debt to pay off debt. Business credit cards usually have high interest rates, meaning you'll need to pay them off in full each month if you want to avoid unnecessary debt.
If you pay only the minimum monthly payment, you risk racking up even more debt in interest fees. Paying these extra fees can set you back even further than the cost of your crisis.
If a crisis has damaged your credit score, then a business credit card can be an excellent tool for rebuilding it. Stay on top of your monthly payments, and you can regain your reputation as a responsible borrower. Plus, swiping your credit card can help you earn cashback bonuses, flyer miles, and other rewards.
Applying for a business credit card is quick and easy. It usually takes a week to get approved and shipped, but then you're good to go. If you're in a bind, getting a business credit card isn't as fast as invoice factoring or a merchant cash advance, but it's not too far behind. It may be a wise decision to secure a business credit card in advance of a crisis so that you always have a bigger credit limit to lean on if cash flow gets tight.
A business line of credit is similar to a credit card-it's an additional credit line that you can tap into when you need and repay the borrowed portion to get access to the credit limit again. Plus, you only pay interest on the amount of the funds you used-not the entirety of the credit limit.
Securing a business line of credit isn't a quick process, so it's likely best to get one in advance to keep in your back pocket for a rainy day. As long as you make timely payments and stay below your credit limit, you'll always be able to count on this financing to get you out of a bind.
Business lines of credit are traditionally more affordable than credit cards and come with higher borrowing limits, however, they don't come with cool cashback bonuses or spending rewards. And if you don't have good credit and a couple of years in business, you may struggle to qualify for one.
When you need fast funds to deal with a crisis, consider invoice factoring. Here's how it works: if you have pending invoices from your customers, you can sell your accounts receivable to a factoring company in exchange for cash upfront.
If you can demonstrate unfulfilled invoices, a factoring company will give you an advance on the money owed, which usually amounts to ~80% of the full value of the invoice. The factoring company then pays you the rest of the invoice (minus their fees) after your customer makes the payment.
For example: if you have a pending invoice for $10,000, a factoring company would give you $8,000 in cash upfront, then you'd get the remaining $2,000 later, minus the operational and origination fees the factoring company takes out.
Invoice factoring isn't the cheapest financing option, but sometimes less money today is more valuable than more a month from now. Plus, when you use invoice factoring, you're not accumulating additional debt or creating new monthly payments-you're simply trading future value at a discount for cash today.
A merchant cash advance (MCA) is another way to trade future cash for capital now. An MCA provides you with a lump sum of cash upfront that you'll pay back with a percentage of your business's future sales.
A lender will look at your historical revenue to gauge how much they're willing to lend to you-this makes MCAs easier to qualify for than term loans. Time is money, and MCAs are all about speed. MCAs tend to be one of the most expensive financing options, but you can sometimes get the cash you need in as little as a few hours.
When you need urgent capital and can't afford to waste any time, an MCA can give you the money you need to fix a burst pipe or replace a vital piece of equipment. If time isn't of the essence, consider other emergency business loans first.
The Small Business Administration (SBA) exists to help small business owners that need financial help, and working with them may be the right choice for you. The SBA was created to assist small businesses with accessing federal resources and navigating their own preparedness plans as described by the CDC's Guidance for Businesses and Employers, and offer a variety of loan programs to help companies get affordable financing.
The SBA's most popular loan program is the SBA 7(a) program, but this is not a fast financing option-far from it.
When COVID-19 devastated small businesses across the US, the SBA provided funding through its Paycheck Protection Program (PPP) and Emergency Injury Disaster Loans (EIDL). However, the SBA offers emergency disaster loans for other types of disasters, too:
Check the SBA's list of declared disasters to see if your crisis is covered. If so, you might be able to access affordable financing through the SBA's emergency disaster loan program.
If a loan isn't right for your business, consider selling non-essential equipment. Look around your office or warehouse. Do you have a car that gets little use or a brand-new piece of equipment that could be sold and replaced with a leased alternative?
Selling equipment can give you enough money to take care of your crisis without taking on any additional debt. Just remember that selling your business's equipment can come with specific tax implications-don't let these blindside you.
For instance, if you sell your equipment for a profit, the IRS can tax you on the extra money you made. You may also run into issues with deductions-the 179 depreciation deduction lets you deduct the total cost of your equipment in the first year you use it, rather than deducting a percentage over each year of the product's lifespan.
However, if you sell your equipment early-say, three years into a six-year lifespan-you won't get a tax deduction on the remaining 50% of equipment depreciation.
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