04 Oct 5 Reasons You Would Need an Emergency Business Loan
Small businesses are still reeling from the pressures of the Covid pandemic, including supply chain breakdowns, decreased sales, increasing employee wages, rising inflation, and adoption of emerging technologies. Many small business owners are seeking funds to finance their cash flow gaps and buy necessary equipment for business continuity. Emergency loans are short-term loans sanctioned to offset unforeseeable adversities in a business.
When You Would Need an Emergency Business Loan
Unpredictable events like natural disasters, health hazards, pandemics, accidents, theft, power outages, and equipment failure can derail your business. You may need an emergency business loan to cover cash flow gaps, fulfill a contract, cover a one-time cost, repair business assets, buy inventory at a discount, or upgrade technology to stay competitive.
Sudden fund shortage is a common issue for businesses across the world. According to U.S. Chamber of Commerce, American businesses usually or borrow from friends and family to make small business emergency purchases. However, many business owners have exhausted their personal savings during the pandemic.
An emergency business loan can be a great way to separate your business and personal liabilities. These types of loans are provided by alternative lenders. Alternative lenders often offer faster loan decisions and more flexible use of funds than traditional lenders.
Top 5 Reasons You Would Need an Emergency Business Loan
Emergency business loans may be used to manage financial, operational, regulatory, or strategic risks associated with your business. You may ask for funds from your existing business lender or government support programs.
You can also seek funds from alternate lenders specializing in providing emergency business loans. They may be better able to understand your situation and arrange for funds faster than banks or credit unions. Before approaching a lender for emergency funding, it’s important to understand your exact business needs and form an action plan to manage the emergency. Here are the top 5 reasons you would need an emergency business loan.
Fund Cash Flow Shortage
Businesses need a steady source of income and sufficient cash in hand to pay bills and wages on time. Cash flow shocks can occur due to a number of reasons like unplanned growth, macroeconomic instability, supply chain shocks, reduced sales, seasonal demand spikes, over-investment in capacity, overtrading, high overhead expenses, low-profit margin, or sudden margin calls.
You can improve cash flow by reducing expenses, increasing your profit margin, and collecting funds from business advances. However, it can be a slow process and may take several months to improve. You can take a short-term emergency loan to manage cash flow uncertainties. Alternatively, you can take an emergency business line of credit and use it only when you need it.
Invest in Necessary Upgrades to Stay Competitive
Businesses are getting more competitive with new technology disruptions by big corporations. Your business needs constant to fulfill certain standards of customer satisfaction. You may require huge investments in one-time technology upgrades to remain competitive. Technology disruptions like 5G, automation, digitization, and cashless payments can affect the survivability of your business.
News laws and regulations can also make sudden upgrades a necessity for businesses. You may need to suddenly upgrade your cybersecurity platform for the safety of your customer’s data or provide better compliance standards for your products and services.
Fulfill a Contract/Make One Time Payment
Businesses need to make timely payments to maintain fiduciary trust in the market. It can be in the form of clearing pending invoices or sudden margin calls from suppliers. Your business may also need funds for periodic tax, insurance, and debt payments. If you do not plan ahead, these payments can pile up on your balance sheet. You may also require funds to cover equipment repair or provide accident compensation to employees.
You may need to buy inventory/stock before an expected price rises. You may also need to buy back company shares from investors . Most emergency loans do not require you to share the details of fund utilizations as long as they are related to your business. You can freely use an emergency loan from alternate lenders to fulfill contracts and make discretionary purchases according to your business needs.
Survive Marco-Economic Distress
Macroeconomic distress events like the COVID-19 pandemic can wreak havoc on businesses. Cyclic downturns in global economies can also affect small businesses in America. According to a , 88% of business owners feel that inflation is adversely affecting their business in 2022. Raising input costs, re-evaluating cash flow and spending, losing sales, increasing employee wages, and reducing business costs were some of the most prominent concerns of business owners in the first half of 2022. Paradoxically, businesses need to keep investing during inflation to stay strong. You can take an emergency loan during these times to cover unforeseen expenses.
According to Data Lab, the . These funds have helped businesses navigate through the economic crisis and recover on a strong footing.
The Emergency Capital Investment Program is a federal initiative to help distressed businesses improve their cash flow, make one-time emergency payments, and avail temporary postponement of existing loan payments during the Covid-19 pandemic.
SBA loans are disbursed by banks, credit unions, intermediate lenders, non-profit community-based organizations, and non-banking institutions that have been approved by the US Small Business Administration. You can get financed up to $5 million with an SBA loan, with no collateral requirement up to $25,000.
Depending on your business emergency and fund requirements, you can get short-term emergency credit as fast as 24 hours from lenders like Bluevine™, OnDeck®, and Credibly. If you have readily liquid collateral like pending invoices or stocks, you may get your funds faster. Some lenders also provide an emergency line of credit, which you can use as a business credit card and pay interest only when you use the funds.