Congress has passed the CARES Act, which includes more than $367 billion in loans for small business owners through Small Business Administration lending programs. These loans come in the form of:
- Economic Injury Disaster Loans of up to $2 million
- SBA 7(a) loans for 2.5 times the previous 12 month’s average monthly payroll (up to $10 million) for employers who help keep employees on their payroll
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There are many good reasons to apply for these loans, including low rates, deferred payments, and even a loan forgiveness option/grant for businesses that qualify. As far as small business loans go, SBA loans are often considered among the best.
But while there is an effort to get funding from these loans into the hands of business owners as quickly as possible, that won’t be easy. SBA loans have not traditionally been known as a fast source of financing. And there’s never been an immediate and overwhelming nationwide demand for these loans as we are seeing right now.
While you wait for an answer on these loans, you may be wondering what sources of financing are available in the meantime. Here are four to consider:
Credit cards
No one wants to carry a balance on their credit cards, and it’s certainly not ideal. But you probably already have a few of them, and they may fill in as a short-term financing gap while you wait for other funding.
Check your interest rate on each card before you use it and consider a 0 percent credit card or balance transfer to keep costs to a minimum. Note that all credit cards (including small business cards) require a personal guarantee, so if your business can’t repay the debt, the issuer will look to you for payment.
Related: Resources for Small Business Aid Amidst the COVID-19 Crisis
Invoice factoring
If you have outstanding invoices from customers that are considered good credit risks, invoice factoring will allow you to get paid more quickly. If approved, the factoring company will advance you a portion of the invoice up front and the rest when the invoice is paid, minus their fees.
There may be a soft credit check involved, but these firms are usually more interested in the credit of the company that owes the invoice, making these a more flexible form of financing for those with less than perfect credit.
Online loans
While lender programs and requirements are changing rapidly, there are still a number of online lenders making financing available quickly to customers — often in a matter of hours or days. These are usually short-term loans and some have high costs, so make sure you apply through a reputable and secure site. And, you will likely be asked to link your bank account so revenues can be verified, so make sure to have all of that information handy.
Crowdfunding
If your business has established loyal customers or fans, crowdfunding may be one way to let them support you during this crisis. Here are four types of crowdfunding to consider:
- Reward-based: Through sites like Kickstarter, you can offer a reward, which could be something backers get soon or at a later date.
- Donation-based: Use a platform like GoFundMe to solicit donations. There are many individuals who want to continue to support small businesses, and this is one way they can do that.
- Loan-based: Use a microlending platform like Kiva to get a 0 percent loan of up to $15,000. There is a six month grace period on payments for loans under their newly expanded program for U.S.-based small businesses.
- Equity-based crowdfunding: These platforms allow you to find investors for your business. Wefunder, for example, has launched a revenue share agreement that allows you to raise between $20,000 and $1 million with payments deferred until 2021. Investors can fund as little as $100, and they can include your customers as well as the 400,000 plus Wefunder investors. Repayment is based on a share of future revenues.
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As you look for interim funding, be careful to avoid scammers who are trying to prey on coronavirus victims. Beware of websites that say you are automatically eligible for financing and then tell you to pay an upfront fee (usually by wire transfer or a prepaid card) before you get the loan. They are looking for desperate borrowers who let their guard down.
Be careful, and stick to reputable lenders with secure websites.
