Government emergency business loans
The federal government offers emergency business loans for small-business owners who have been impacted by disasters, including the pandemic:
SBA disaster loans: Businesses struggling due to disasters such as tornadoes, flooding or droughts may qualify for SBA disaster loans of up to $2 million. For small-business owners in need of COVID-19 relief, the SBA is offering COVID-19 Economic Injury Disaster Loans of up to $500,000 through Dec. 31, 2021. PPP loans: The Paycheck Protection Program provided forgivable relief loans for businesses, independent contractors and the self-employed hard hit by the pandemic. These loans are no longer available.
Benefits of online loans
Online lenders can be a strong option for an emergency business loan. They provide the speed and convenience that big banks and credit unions often do not.
Most online lender websites disclose how fast applications can be completed and how long it takes to fund a loan, making it easier to compare options by speed. Applications can usually be completed in just a few minutes, and many lenders offer same-day business loans.
Other factors to compare include origination fees, annual percentage rates (the interest rate plus all fees associated with the loan) and the loan’s repayment term.
You can use a business loan calculator to estimate your monthly payments and total interest costs to determine the loan’s affordability.
Types of emergency business loans
Here are the main types of emergency business loans and how to choose which one works best for you.
Term loans: A term loan provides a lump sum of cash, repaid weekly or monthly with interest over a predetermined period. It’s an option when you need to finance a large, one-time emergency expense, like replacing a broken piece of equipment or busted pipes.
Business lines of credit: This type of financing provides 24/7 access to capital, so it can make sense for covering costs during a crisis. You get a borrowing limit (up to $250,000) that you can keep reusing and repaying, as long as you make timely payments and you don’t exceed your credit limit.
Invoice factoring: If you have customers who owe you money but have yet to pay, those unpaid invoices can be sold to a factoring company for a fee. However, this type of financing can be costly, and the factoring company may deal with your customers directly to collect on the unpaid invoices.
Avoid predatory loans
Small businesses can be targets of predatory lending practices, such as not listing fees and interest rates as annual percentage rates, charging prepayment penalties and offering loans with payment terms that aren't fixed.
Merchant cash advances are a type of business loan that is often considered predatory and should be seen as an option of last resort. MCA loan payments are either automatically deducted from your credit card sales or withdrawn daily or weekly from a bank account.
MCAs typically carry APRs in the triple digits. The high costs and frequent payments can put a strain on your cash flow and lead to a debt trap, where you need to take out more cash just to stay afloat.
Compare small-business loans
NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged lenders by categories that include your revenue and how long you’ve been in business.