What is a fast business loan and how does it work?

LockieCurrie/GettyImages; Illustration by Hunter Newton/Bankrate

Business loans come in many different forms. Some are easier to access than others, and both loan amounts and funding times vary by loan product.

If you’re a small-business owner who needs cash now, a fast business loan could be ideal. That said, it’s important to understand how it works and when it makes sense to get a small business loan before applying.

What is a fast business loan?

A fast business loan is a type of funding for business owners who want fast access to capital. Like any business loan, fast loans can be a lump sum of cash or a line of credit that you can draw from repeatedly. But instead of having to wait weeks, these loans offer quick online applications, minimal documentation requirements and approvals that can happen in minutes and funding that is in your account within one to three business days.

How does a fast business loan work?

You typically need to apply for a fast business loan through an online lender specializing in quick applications as well as fast approvals and funding. These lenders often have relaxed eligibility requirements and even offer fast business loans for business owners with bad credit.

Fast business loans can be unsecured or secured. If you aren’t eligible for an unsecured loan, you will have to provide an asset or assets, also known as business collateral. This can make it easier to get approved for a loan with better rates and terms, but your asset could be seized if you fall behind on the financing payments.

Some lenders also require you to sign a personal guarantee, which means you agree to accept personal liability for the debt if your company can’t make payments. This is a common practice, even for businesses registered as limited liability companies (LLC).

What are fast business loans used for?

Fast business loans can serve various purposes. Here are seven ways you can use a fast business loan:

• Emergencies: A fast business loan can help address an unexpected financial crisis, such as equipment breakdowns or inventory losses, to avoid business closure.
• Cash shortfalls: Covering temporary cash shortages ensures bills are paid on time and avoids disruptions or negative impacts on credit.
• Seasonal / short-term borrowing: Loans can support businesses with seasonal fluctuations, aiding during slower periods.
• Unplanned expenses: Loans provide a buffer for unforeseen costs that may impact cash flow.
• Disaster recovery: Aid in quickly rebuilding a business after a disaster.
• Time-sensitive opportunities: Capitalize on growth opportunities quickly with access to immediate funds. For example, you may have an influx of product orders but not enough capital to buy inventory to fill the orders.
• Debt consolidation: Debt consolidation loans can help you streamline your debt repayments into one loan. It potentially lowers your loan costs if the new loan offers faster repayment or lower rates than the previous loans.

Are you eligible for a fast business loan?

Each lender has its own set of eligibility requirements for fast business funding. Some lenders, like traditional banks and credit unions, typically want to see that your business has been around for at least two years and has sizable revenue of $250,000 and above. But it’s possible to find loans that only require six months’ time in business and an annual revenue of around $100,000.

You may be able to get a business loan with a personal credit score of 500, but it depends on the lender and the type of business loan. Most loans typically require fair credit and above.

Where to get a fast business loan

Online lenders are known for their fast funding times compared to traditional banks and credit unions. Here’s a look at a few of the top small business lenders that offer fast business loans, usually funding within 24 to 48 hours:

• OnDeck: OnDeck offers term loans up to $250,000 and business lines of credit up to $100,000 to fair credit borrowers. You can even get funding within the same day if you apply for the loan early during a business day.
• SMB Compass: SMB Compass offers nine types of business loans, including standard options like lines of credit and alternative loans like bridge loans and purchase order financing.
• Fundible: Fundible offers business loans with high loan amounts up to $10 million, same-day funding and some of the lowest criteria for eligibility on the market. You can qualify with a personal credit score as low as 450, according to a spokesperson.
• Fora Financial: This lender provides short-term loans of 16 months or less to borrowers with subprime credit. You can get up to $1.5 million in the form of a term loan or cash advance in which you repay the loan out of a portion of your future sales.

If you’d prefer to explore other options, consider an SBA Express loan, which typically comes with more favorable interest rates and repayment terms. Unlike other SBA loans, SBA Express loans are known for their swift response times, thanks to lenders making all decisions directly. Unfortunately, closing the loan and receiving funding can still take 30 days or longer.

Should you get a fast business loan?

Fast business loans work well if you need funding in 24 hours or less for emergencies or another pressing reason. Since these loans typically come from online lenders, you’re more likely to be eligible for fast business funding even with subprime credit or little business experience. Online lenders tend to be more lenient with business qualifications than other lenders.

But you’re also more likely to pay higher interest rates than a traditional business loan in exchange for the convenience of fast loan approval. You can also expect short terms, like 24 months or less, and an aggressive repayment schedule. For example, repayments could be on a daily or weekly basis.

Because of this, you’ll need to know how to manage a tight repayment schedule and high loan costs — and be sure that the benefits of getting a fast business loan are worth it. If you can wait a week or two for funding, you may be able to get a lower-cost loan from a lender that doesn’t fund business loans as quickly.

Bottom line

The best fast business loans can help your company overcome financial setbacks or expand operations. But before applying, carefully review the pros and cons of fast business funding to decide if it’s worthwhile or if you should explore other options.

If you decide to apply, use a business loan calculator to figure out how much of a business loan you can afford.

Frequently asked questions

• How fast can you get a business loan?

  It depends on the lender. Some fast small business loans can be in your business checking account in as little as one day.

• Can you get a fast business loan with bad credit?

  You can get a fast bad credit business loan.  Many lenders are willing to work with business owners with personal credit scores of 600 and above. Some are even willing to help people with even lower scores. This includes Fundible, which has a credit score requirement of 450. Expect hefty borrowing costs, and collateral may be required to secure funding. You’ll also generally have limited funding options than you would with a higher credit score.

• What is the fastest SBA loan?

   The SBA Export Express and Express loans are known to have faster turnaround times compared to other SBA loans; however, the lender determines the processing and funding for these loans.