Emergency Business Finance – Your Options Explained

Emergency Business Finance

In 2021 and 2022, you are going to see more and more businesses need emergency finance.

COVID means some businesses will be short of cash due to lockdowns and tight Government restrictions.

This article will outline options businesses have to get their hands on short-term finance when times are tough or your business is struggling to pay the debts and expenses.

Which institutions cannot provide emergency business loans?

Many people think they can simply walk into their bank and ask for a short term loan or financing because they are short on cash. So the first thing we have to eliminate is banks as an option for fast cash and short term business financing. It’s due to the time it takes for banks to get around to processing your application and releasing the funds. They are notoriously slow, and the paperwork required is extensive, which rules them out for short term emergency financing. In addition, finance approval with banks can take up to 3 weeks which won’t suit your financial obligations where cash is needed quickly. Plus, they will need the loan secured by real estate or your home, which is a lengthy process – not ideal for emergency financing.

Also readSmall Business Finance: What’s best for you?

1) Business credit card

A business credit card is the same as a personal credit card and is an excellent option for emergency financing for your business. In addition, some banks and financial institutions will approve your business credit card in a day or two. Plus, you’ll have to wait until the card is posted out to your premises. The only downside of a business credit card is the hefty interest rates. They are a killer, and you’ll end up paying hefty monthly interest fees if you can’t pay off the principal quickly. Just watch the interest accrue as you let the debt pile up. A business credit card is only an option if you are confident that you can maintain the instalments.

2) Merchant cash advance

It is a great way to get quick cash, but it only applies to businesses with a merchant facility, such as the retail and hospitality industry. With a merchant cash advance, the lender provides the funds and is repaid through small percentages of every merchant transaction. If your business has a high percentage of merchant transactions, this is another good option. 

3) Invoice finance

Investopedia defines invoice financing as a way for businesses to borrow money against the amounts due from customers. For B2B that send out invoices, this type of finance is a good option. With invoice finance, the lender uses the value of outstanding invoices as collateral for the loan amount, which could be 80% or more. So, for example, if your invoices outstanding equals $100,000, they might loan you up to $80,000 based on the value of these invoices. The lender will charge a fee and interest for the outstanding invoices. This financing option is great for businesses that keep their accounting records in good order and can show the lender a good track record of reliable paying customers.

Business lines of credit and overdrafts

A business overdraft allows you to draw on funds that are in your account. You can prearrange to have an overdraft in place for emergencies, so when you need the funds, they are in your account, ready to use. The same principle applies to a line of credit as the funds are there in your account for use. The advantage of these revolving credit types is you only start paying interest when you use the facility. So, the money is there waiting for you, and if you don’t use it, you don’t have to pay anything. It’s money there for a rainy day. There will generally be an establishment fee and obviously interest charges when you use the funds.

Where to get fast business finance in Sydney, Melbourne or Brisbane?

There are several financial institutions and banks that provide business loansHowever, banks tend to be, as we know, very bureaucratic and in uncertain times like now, they have tightened their lending capacity. Therefore, they are more inclined to say no to your finance request than yes. So, if you need fast access to cash, there are always options like Sparrow Loans to get you the money you need for your business in 48 hours; if you are worried about cash flows and future debts such as your ATO obligations, nows is the time to plan and arrange your finances.

About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.