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Updated: June 15th, 2020
When you’re a business owner, managing crises is part of the job. There are different types of business crises you might come up against. These can include personnel crises, natural disasters, tech crises, organizational crises, or financial issues.
You might run out of inventory, for example, lose power at the office, or have to deal with your entire sales team getting sick at the same time. If unprepared, a business crisis can halt daily operations and set your company back financially.
That’s why it’s critical to understand your options for emergency funding if you’re a small business. When a crisis strikes, and you don’t have enough working capital to handle it, what should you do? From emergency business loans to selling equipment, here are seven strategies for fast cash for your business to consider the next time you’re dealing with an emergency.
Start by looking at your business’s cash flow. If you have positive cash flow, you may already have enough money to cover the cost of your crisis without falling behind on upcoming payments. If cash is tight, though, you may need to shuffle some things around.
To increase your cash flow, you either need to delay outgoing payments or expedite incoming payments. Asking clients to pay you on a shorter timeline than you agreed upon may be tough, especially if you don’t have a longstanding relationship with them. If you have a good relationship with your suppliers, though, you may feel more comfortable asking them for a payment extension. Call your contact person to explain the situation, request a later payment date, and negotiate interest.
Keep in mind that this option only works if you know you’ll have enough funds to pay what you owe — plus interest — at a later date. If you think there’s even a slight possibility your business might still be struggling with cash flow after the crisis, it’s best to look elsewhere for money. Emergency business loans could be your best option. If you can’t follow through on your promise to a supplier, you risk damaging the relationship and creating more significant problems in the future.
If you need to make a big purchase in the wake of a business crisis, consider using a business credit card. Depending on your credit limit and balance, you may be able to charge the cost of a new point of sale system or an emergency order of inventory to your card.
If you go this route of getting emergency funding for your small business, make sure you have enough money to pay off your balance in full at the end of the pay period. If you pay only the minimum monthly payment, you risk racking up even more debt in interest fees. Paying these extra fees can set you back even further than the cost of your crisis.
If you don’t already have a business credit card, you can apply for one easily. But, it usually takes at least a week to get approved and start using your card. Plus, depending on the starting credit limit you receive, you may not have enough credit to cover the full cost of dealing with your crisis. However, if you don’t have a massive purchase to make and can afford to wait a week or so, then applying for a business credit card can be a great option as fast cash for a business. Plus, paying off your business credit card on time is key to improving your business credit score.
When you need fast funds to deal with a crisis, consider invoice factoring. Here’s how it works: if you have pending invoices from your customers, you can sell your accounts receivable to a factoring company in exchange for cash upfront. Keep in mind, though, that you have to prove you have unpaid invoices.
If you can demonstrate unfulfilled invoices, a factoring company will give you an advance on the money owed, which usually amounts to 80% of the full value of the invoice. The factoring company then pays you the rest of the invoice — minus 2-32 in fees — when your customer pays you.
If, for example, you have a pending invoice for $10,000, a factoring company would give you $8,000 in cash. You’d get the remaining $2,000 later, minus the operational and origination fees the factoring company takes out. Depending on the company you choose, as well as your customer’s payment timeline, you could end up losing a good chunk of your money in fees. However, if you need quick emergency funding for your small business to maintain operations after a crisis, getting a large sum of cash may be worth the loss in fees.
If you need money to repair damage to your building or buy a new X-ray machine for your medical office, consider selling your equipment. You might have a car on-site that you no longer use for delivery, for example. Or, maybe you recently bought a new excavator for your construction business, but haven’t yet sold your old one — whether at market value, for a profit, or a discounted price. Selling equipment can give you enough money to take care of your crisis and return operations to normal.
It would be best if you only considered selling equipment that you no longer use for daily operations or major projects. Otherwise, in the course of getting fast cash for your business, you risk trading one problem for another by getting rid of something you might need.
It’s important to note that selling your business’s equipment comes with potential tax complications. If you sell your equipment for a profit, for instance, the IRS can tax you on the extra money you made. You may also run into issues with deductions. The 179 depreciation deduction lets you deduct the full cost of your equipment in the first year you use it, rather than deducting a percentage over each year of the product’s lifespan. However, if you sell your equipment early — say, three years into a six-year lifespan — you won’t get a tax deduction on the remaining 50% of equipment depreciation.
Sacrificing a deduction can increase your income taxes for the year and throw off your overall finances. As such, it’s crucial to talk with your accountant before making this choice.
Merchant cash advances (MCAs) are a popular option among businesses for fast emergency funding. With an MCA, you receive a lump sum of cash upfront in exchange for a percentage of your business’s future sales or revenue. Not only are MCAs easier to qualify for than term loans, but you can usually get the cash you need within just a few hours. That’s why MCAs as emergency business loans are an appealing option for those dealing with crises, like a burst pipe or damaged inventory.
However, the price for this level of speed and convenience is high. The average APR for an MCA ranges from 20% to a whopping 250%. Plus, many MCAs come with hidden fees that can increase the actual cost of the emergency business loan and make it difficult to recover. An MCA may give you the money you need to handle an immediate issue, but having to pay down so much debt can send your business into the financial crisis long-term.
When you need extra cash flow to handle a business crisis, consider working with the SBA. The SBA was created to assist small businesses with accessing federal resources and navigating their own preparedness plans as described by the CDC’s Guidance for Businesses and Employers.
The SBA provides a number of loan resources for small businesses to utilize when operating their business. For more information on loans or how to connect with a lender, visit: https://www.sba.gov/funding-programs/loans.
With a Funding Circle term loan, we offer once-monthly payments and competitive, fixed interest rates so that you can deal with your crisis and budget for the future. The best part about our small business loans? You don’t need to wait — you can apply online in just minutes. Once you submit your application, you’ll receive a response in as little as 24 hours. Then, if you’re approved, you can get your funds as soon as the next business day.
We can also connect you to Paycheck Protection Program loans offered through the SBA. Funding Circle, the largest small business lending fintech is one of a few non-depository online lenders in the United States that was recently approved to provide Paycheck Protection Program loans. We offer the PPP application in four languages: English, Spanish, Mandarin and Hindi. CLICK HERE.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.