Pros and Cons of Fast Business Loans

Maskot/ Getty Images; Illustration by Austin Courregé/Bankrate

Cash flow problems are common in business when customers pay late or unexpected expenses come up. The 2023 Small Business Credit Survey found that small businesses’ biggest financial challenges in the previous 12 months were the rising costs of goods (77 percent), paying operating expenses (52 percent) and uneven cash flow (49 percent). Fortunately, in situations where you require funds fast, you have options.

Fast business loans are a type of financing that generally offers funds within one to three days following an approval that could take as little as a few minutes. But since these loans have drawbacks, consider the pros and cons of fast business loans before making a final decision.

Compare pros and cons of fast business loans

Pros

• Can cover emergency costs
• Accessible to subprime borrowers
• Fast application process
• Fast funding

Cons

• Can get expensive
• Low borrowing limits
• Shorter repayment terms
• Liability

Pros of fast business loans

Fast business loans offer several benefits to keep in mind.

Can cover emergency costs

You can make plans to keep operations running smoothly and go the extra mile to execute your strategy. But there may still be times when issues arise that are out of your control. For example, your company could take a significant hit due to a natural disaster, pandemic or other emergencies. Or market conditions could change, leading to a substantial downturn in revenue. A fast business loan offers a viable option to access working capital when you need it most.

Accessible to subprime borrowers

Many online lenders offer fast bad credit business loans to borrowers with lower credit scores. On top of the potential to provide funds within several days, these types of business loans have lower eligibility requirements. Those requirements typically include a minimum time in business of six months to a year, annual revenue requirements from $50,000 to $150,000 and a personal credit score around 600 or higher.

Fast application process

Many fast business loans feature a streamlined application process to help you get funded quickly. Most applications can be completed online, and you typically won’t need extensive documentation like you would with a traditional bank.

Fast funding

Where you apply for a fast business loan impacts funding time. When you apply with a traditional bank or credit union, receiving a lending decision could take several days or weeks. And if you’re approved, you’ll likely have to wait even longer to receive the loan proceeds.

But a fast business loan with an online lender can approve your loan in minutes and provide funds within one to three business days. Many even advertise sending funds to your account within 24 hours.

Cons of fast business loans

Before you try to get a fast business loan, consider the cons of fast business loans.

Can get expensive

The cost of the fast business loan ultimately depends on the lender. With alternative lenders who offer fast business loans, the luxury of receiving fast funding for your business often means higher interest rates and fees. Some lenders also charge steep origination fees to take out a fast business loan. Or you could be assessed a prepayment penalty if you pay the loan off early.

Select forms of high-risk business financing offer fast funds to most borrowers, but they can come with high fees and borrowing costs. For example, bad credit business loans may charge a factor rate like 1.1 or 1.5 rather than an interest rate. These rates often convert into high interest rates, such as 30 percent to 90 percent.

Low borrowing amounts

Some fast business loans offer smaller maximum loan amounts than traditional bank loans. Depending on the lender, you may find lines of credit that only go up to $250,000 or term loans of $500,000 or less. Unfortunately, this can be a problem if you need to make a sizable purchase or investment for your company to grow.

Short repayment terms

Some fast business loans need to be repaid quickly. Online lenders like Credibly specialize in providing fast and accessible loans to people with credit scores over 500. But the repayment terms can be short, often as little as three to 24 months. These terms are far shorter than bank loans, which can give you five years or longer to repay loans.

Lenders may require short terms to ensure that they get repaid quickly rather than extending the risk of lending to your business over a long term.

Bottom line

Fast business loans can work for your business if you’re in a financial bind or need working capital to take advantage of a limited-time investment opportunity.

But there are pros and cons of fast business loans. You should carefully weigh the costs since fast business loans often come with higher interest rates and fees and shorter repayment terms. If you decide a fast business loan is right, read the fine print and loan agreement carefully to understand what you’re committing to. Otherwise, other options are available to help you find the best small business loan for your business.

Frequently asked questions

• Are fast business loans a good idea?

  Fast business loans can be a good idea if you’re in a financial pinch and need the money to cover an unexpected expense or opportunity. But you may pay more in interest and fees in exchange for the convenience. If you can spare a week or two before receiving the funds, you could score a lower-cost business loan with a lender that takes more time to approve business loans, such as a bank or credit union.

• How long does it take to get an SBA loan?

  SBA loans are known for their slow processing times. Expect to wait 30 to 90 days to receive the loan proceeds. The timeline could be sooner if you apply through an SBA Preferred Lender or request an SBA Express loan.

• Where can I get a fast business loan?

  Many online lenders offer fast business loans that can approve you in minutes and may even provide same-day funding. You may also have luck with a bank or credit union, though they typically tend to have slower approval and funding times.