The Complete Guide To Quick Business Funding

Quick business funding involves quickly obtaining funds for a business within a few days or weeks. Nowadays, businesses have various options to choose from traditional and digital lending solutions. Continue reading to explore these options. 

What Does Quick Business Funding Mean? 

Quick business funding means applying and getting approved for a loan in a fast and convenient way. Businesses can use quick business funding to meet their long- and short-term needs for working capital, expansion, or investment. 

Such funding options usually offer flexible loan amounts, tenure, and repayment options, which help the business avail a loan according to their needs. However, delayed repayment can affect the business’ credit score and even expose them to scams if they are dealing with unregulated lenders. 

Quick business funding can help businesses seize growth opportunities, overcome cash crunches, and deal with emergencies. 

Types of quick business funding

Quick business funding generally offers an easy and hassle-free application and approval process, but this can be further simplified based on the type of quick funding option you choose. 

Broadly, there are two types of quick business funding options: 

• Traditional lending solutions
• Digital lending solutions

Let’s discuss both in detail. 

Traditional Lending Solutions

Traditional lending alternatives involve obtaining money from financial institutes like banks via their physical branches. Here are some traditional lending solutions:

Term Loans

Provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. The borrowers agree to pay the lenders a specific interest rate over a fixed repayment schedule based on factors such as credit history and business stability. They can be secured or unsecured and are a useful option for businesses looking to buy new equipment or buildings. 

Equipment Financing

It offers funding to business owners looking to purchase, lease or upgrade their equipment. The loan provides borrowers with cash upfront, which they must pay along with interest over a fixed period. In this case, the borrower owns the equipment and can claim depreciation. The equipment acts as collateral.

In the case of a lease, borrowers use the equipment, pay for it, and return it. However, neither do borrowers own the equipment nor can they claim depreciation on it. At the end of the term, the equipment returns to the lender. 

Working Capital Financing

To fund daily operations, working capital financing can be obtained via a working capital loan, business line of credit, invoice financing, or business credit cards, amongst others. Businesses can’t finance long-term assets but only cover short-term expenses such as rent, payroll, and debt payments. 

• Working capital loan: It provides a lump sum to the borrower upfront, who must pay it back with interest over time. This loan can be both secured and unsecured — depending on how likely the borrower is to pay off the loan. 
• Business line of credit: It involves a revolving credit facility that allows borrowers to borrow funds when needed and pay interest only on the amount they used. It offers more flexibility and lower interest rates than a loan. But it also comes with higher fees and stricter eligibility criteria. 
• Invoice financing: It allows small businesses to use their unpaid sales invoices as collateral to receive immediate cash. It can help businesses with high seasonality and cyclical sales to cope with periods of low cash flow and increased demands. 
• Business credit cards: Business cards allow borrowers to make purchases, pay bills on credit, and then restart the credit line once exhausted. It can provide easy access to working capital funds and allows them to enjoy benefits. However, these demand high-interest rates and annual fees. 

Digital Lending Solutions

Digital lending is a modern financing process involving companies leveraging digital technology and allowing financial institutions to find their customers far and wide. 

Online Term Loans

Online term loans are similar to term loans, but you can apply and obtain these via the internet. These can offer a wide range of options for the loan amounts and ensure to suit the borrower’s needs and repayment capacity. They are typically collateral-free and require less paperwork. However, they tend to come with higher interest rates.

P2P Pending

Financial technology allows for direct lending between peers without a financial institution’s mediation. Peer-2-Peer (P2P) lending platforms connect borrowers and lenders online and facilitate their transactions. These loans do not require collateral.

POS Transaction-based Lending

Point-of-sale (POS) financing is when the merchant offers the buyer the option to make payments for a purchase over a period of time, typically with no interest. The application process is quick and easy, with the borrowers getting loans within minutes of applying. The loan amount and tenure are both flexible. This type of lending is commonly used for certain categories of goods like electronics and automobiles.

Aggregator Lending

It involves a third-party service provider connecting borrowers with lenders online and facilitating transactions for an unsecured loan. These can be used for business, personal, or mortgage loans. Borrowers and lenders must be registered on the platform, upload their documents, and complete profiles. 

The approval process is quick and transparent and varies from platform to platform. The borrowers can choose the loan amount and tenure they want, while lenders can diversify their portfolios by investing in loans from multiple businesses in different industries.

Quick business funding can help you meet short-term needs for cash flow, working capital, or investment. However, if you borrow more than you can afford, these options can be risky. Plus, these options can affect your credit score negatively if you default on the loan. Therefore, having a clear business plan, assessing your financial situation and comparing offers from various lenders is critical. 

Frequently Asked Questions

How can I raise money for my business without a traditional loan?

Businesses can raise money via new-age lending alternatives to traditional loans like invoice financing, peer-to-peer lending, and equipment financing, among other options. 

What are the three sources of capital? 

Three sources of capital are: 

• Equity capital (raised by issuing shares of a company), and 
• Debt capital (borrowed money)
• Retained earnings (accumulated profits)

What is the difference between funding and financing? 

Financing is raising money from external sources to support a business or project involving interest payments or equity dilution. On the contrary, funding may not require repayment or ownership transfer.