However, while they’re certainly fast, same-day or instant business loans are generally more expensive than other funding options. Depending on your financial situation, though, the extra expense may be well worth it. Also, if you have a good credit score, you can expect to pay lower interest rates on instant loans.
To help you decide whether to move forward with a same-day business loan, you need to consider its pros and cons. Therefore, in this post, we’ll lay out the benefits and drawbacks of this fast financing option. Before we review the pros and cons, though, let’s quickly review what a same-day business loan is.
What is a Same-Day Business Loan?
In terms of structure, same-day business loans are like any other loan. You borrow a pre-determined sum at an agreed-upon rate and pay it back with interest over a set repayment term.
The key difference is that same-day business loans provide funds in 24 hours or less from the time you submit your application.
Typically, you’ll need to work with an alternative online lender to find same-day financing. Larger banks and credit unions usually don’t offer same-day funding. Their loan processes typically come with time in business, bank statements, and other financial requirements.
The Pros of Same-day Business Loans
1. Speed of funding process
In the finance world, timing is crucially important. A business loan that provides funds even one day too late may be completely useless to you. For instance, if you’re going to be late submitting a payment that’s due tomorrow, a traditional loan has no value to you. However, if you need more cash flow in the long-term to invest in an expansion project, applying for a traditional business loan will still be beneficial.
This is the primary advantage of same-day business loans; you'll receive the funds you need the same day you apply for them.
2. Ease of loan application
The long application processes and extensive paperwork requirements of traditional loans make many entrepreneurs reluctant to pursue financing.
With instant business loans, though, this is generally not an issue. You’ll need to provide basic financial information to apply for a same-day business loan, but you won’t need extensive financial documentation.
3. Less stringent approval criteria
Compared to traditional business financing, same-day business loans have much less stringent approval standards. While the criteria vary among business loan lenders, it’s possible to secure an instant
small business loan with a minimum credit score of 600.
Also, many same-day lenders don’t require you to
submit collateral.
Of course, putting up collateral and/or having a higher credit score will help you find better rates.
The Cons of Same-day Business Loans
1. Higher interest rates and fees
As mentioned above, same-day business lenders tend to have less stringent approval criteria. This means that these lenders tend to approve riskier applications which leads to higher rates of default. To stay profitable with more frequent
borrower defaults, these alternative lenders must charge higher interest rates and fees.
2. Fewer lender options
In the world of business financing, same-day business loans are like specialty products. Most traditional lenders, such as credit unions and banks, don’t offer instant business loans. As a result, it’s generally harder to find reputable lenders that provide same-day loans.
That being said, there are other same-day financing options available that aren’t technically loans. Two such options are merchant cash advances (MCA) and accounts receivable financing. However, while some do, not all companies that offer MCAs and accounts receivable financing provide same-day funding.
3. Smaller loan amounts
In most cases, entrepreneurs looking for same-day business loans opt for personal loans that they use for business expenses. Typically, personal loan amounts range from $2000 to $50,000, which is significantly less than you’d expect with a traditional business loan.
For larger, more established businesses, $50,000 may be insufficient. On the other hand, $50,000 may be more than enough for your business expenses if you’re just starting out.
Conclusion: Don’t Rush into a Same-Day Business Loan Option
It might seem counterintuitive, but the last thing you want to do is rush into an instant business loan. The high interest rates associated with these loans mean they can be very costly.
Therefore, before you sign your loan agreement, make sure you understand all the costs of your term loan. Your evaluation should include the cost of interest, fees, and potential penalties.
Also, be wary of digging yourself into a deep hole of debt with an instant business loan. Since same-day loans are relatively easy to get approved for, it’s tempting to use one to put off a large financing issue.
The trouble is, while you can use a same-day loan to solve short-term issues, eventually you’ll need to fix the root problem.
With those disclaimers aside, there’s no reason you can’t use a same-day business loan to great effect. With traditional loans, you’ll have to wait weeks or months to access your funds. Instant loans put money in your business bank account quickly so you can act fast.