Key takeaways
- Fast business loans can get funds into your account in as little as 24 hours but often come with higher interest rates and additional fees
- Interest rates for fast business loans vary, and some lenders may utilize a factor rate instead of an interest rate
- Alternatives to fast business loans include crowdfunding, business credit cards, peer-to-peer lending and business grants
A fast loan approval process is appealing if your organization needs cash fast. In some cases, fast business loans can get funds into your account in as little as 24 hours. But at what cost?
Fast business loans often have higher interest rates and additional fees, making them more costly than traditional small business loans. Before agreeing to a fast business loan, it’s important to determine if the cost is worth it for your business.
What is a fast business loan?
Fast business loans are usually offered by online lenders. Since online lenders’ underwriting processes are often less strict than traditional banks, the application and funding processes are much faster. Approval times vary from minutes to hours, but you’ll typically receive the funds in a few days.
You can use a fast business loan for various purposes, including handling unexpected maintenance costs, covering cash shortages, purchasing inventory or equipment or taking advantage of a time-sensitive opportunity.
How much do fast business loans cost?
Several factors influence the cost of business loans. The cost of fast business loans often depends on the lender, the type of loan you’re applying for, the interest rate and any additional fees.
Lenders
Most lenders offering fast business loans are online lenders. They often specialize in fast turnaround times for applications and funding. You can get a fast business loan from an online lender without interacting with a lending rep — most applications are virtual and self-guided.
Bankrate insight
For more lenders, check out our guide on the best fast business loans.
Loan type
Most fast-working online lenders offer loans similar to traditional lenders, like term loans and lines of credit, but also specialize in nontraditional loan types.
| Loan type | Purpose |
|---|---|
| Online term loan | A lump sum of cash that is paid back over a set period. Fast business loans often have shorter repayment periods than traditional term loans. |
| Business line of credit | Lines of credit operate much like a business credit card. You can take out as much cash as you need up to a predetermined limit, paying interest only on the amount you’re actively using. |
| Equipment financing | Designed to help purchase business-related equipment. Semi-truck loans are one common type of equipment loan. |
| Invoice factoring/financing | Leverages your unpaid accounts receivable invoices for cash. You can usually sell up to 85 percent of the total value of the outstanding invoices to a lender. |
| SBA Express loan | SBA loans are backed by the U.S. Small Business Administration. Express loans have an application turnaround time of 36 hours, which is much faster than other SBA loans. |
| Merchant cash advance | Allows you to borrow a certain percentage of your average credit card revenue from a lender, usually paying it back with a factor rate instead of an interest rate. |
Interest
Interest rates will vary depending on how much you borrow, your personal and business credit scores and your chosen lender. Interest rates can also be variable or fixed. Here are some average interest rates for fast business loans:
| Type of loan | Average interest rate |
|---|---|
| Term loan | 6.00% to 74.99% |
| Business line of credit | 4.80% to 48.90% |
| Equipment financing | 5.99% to 24.99% |
| Merchant cash advance | 1.09 to 1.20 (factor rate) |
Bankrate insight
Collateral
Collateral is security for a lender if the business owner defaults on a loan. Most commonly, collateral is the asset you’re getting a loan for, real estate or cash. That said, it’s up to the lender to determine the appropriate collateral for the loan you’re applying for.
Fast business loans can be either secured or unsecured. Secured loans require collateral, while unsecured loans don’t.
Fast business loan fees
Apart from interest, several fees and costs are associated with fast business loans.
- Administration fee: A generic fee charged upfront, covering some of the paperwork and banking costs associated with processing your application.
- Application fee: A one-time, upfront fee paid when you submit your loan application. Not all lenders charge this fee.
- Credit check fee: A fee charged when lenders pull a hard credit check before approving a loan.
- Draw fee: If you have a business line of credit, you may be charged a fee when withdrawing funds from your account.
- Late fee: Usually a flat fee that’s charged when you miss a loan payment.
- Origination fee: Sometimes also known as an administration fee. Often, it’s assessed as a percentage of the money borrowed and deducted from the money disbursed at the start of a loan or added to the total loan amount.
- Prepayment penalty fee: When a loan is paid off early, you may be charged a prepayment penalty. Not every loan or lender charges prepayment penalties.
You can use our business loan calculator to understand potential monthly payments based on principal, interest and fees.
Repayment terms
Repayment terms outline how you will pay back your fast business loan. Often, this includes a monthly payment date, amount and end date by which the total loan balance must be repaid. Repayment terms are determined and agreed upon loan acceptance. Any repayment terms will be outlined in your loan agreement.
Bankrate insight
Alternatives to fast business loans
If you’ve weighed the pros and cons of a fast business loan and they’re not for you, there are alternatives to consider without getting a traditional loan.
- Crowdfunding. Several types of crowdfunding exist, including reward, donation, and debt. Crowdfunding sites often take a percentage of your funding as a fee, and it isn’t always guaranteed you’ll receive financing.
- Business credit cards. Business credit cards can be approved within minutes and often come with additional perks, like travel miles or cash back, but credit limits and requirements vary.
- Peer-to-peer lending. Often offered as a personal loan, making it a bit riskier for a business. As it can depend on several investors, it isn’t especially quick or a guaranteed way to get financing.
- Business grants. Business grants don’t have to be repaid, but they take time to apply for and are highly competitive. With a longer application process, it’ll be a slower process to receive funding.
Frequently asked questions
-
The easiest business loan to get will depend on your business and the type of funding you’re looking for. The best fast business loan for every business varies, but loans offered by online lenders are often easier to get than those from traditional lenders.
-
The average small business loan is $663,000. If you’re taking out a fast business loan, the faster application process can mean the loan amount is smaller. Many fast loans are for $500,000 or less.
-
An interest rate under 10 percent for a fast business loan is considered good. However, depending on your credit, lender and funding, you may find a good interest rate for your loan is higher or lower. Always shop around for a fast business loan to ensure you get the best rates and terms.
Read the full article here
