For home-based business owners, orders to shelter in place or practice social distancing may not be a terribly hard adjustment. (Provided, of course, you’re not also trying to juggle child care and other unforeseen demands on your time.)
But with so many businesses affected, many home-based business owners will need financing to get through this crisis. And with banks shortening lobby hours or closing branches, going online for financing makes more sense than ever. Here are three ways to find financing without leaving your home office.
1. Credit Cards
Carrying a balance on a credit card isn’t typically recommended. But these are not typical times, and a credit card can be an essential source of cash for a small business. A credit card with 0% APR for 12-20 months, for example, could provide your business with much-needed funding. You may already have one in your wallet: if not, make sure you apply soon. Small business and personal cards require a credit check, and you will want to get approved now before cash gets tighter.
Tip: Some small business credit card issuers don’t report to personal credit unless the cardholder falls behind on payments. (Here’s a list.) This may be a smart option for keeping business debt off your personal credit.
2. Online Lenders
There are a variety of online loan products, including:
- Term loans (fixed loan, usually with a fixed rate)
- Line of credit (borrow as much as you need up to the credit limit)
- Invoice financing (advances on outstanding invoices)
- Merchant cash advances (advances based on credit and debit card sales)
It will be tempting to apply to multiple lenders, hoping that someone will give you a loan, but be careful. Excessive credit checks can hurt your personal credit, and many small business lenders will at least do a “soft” credit check on the owner’s personal credit. (Soft inquiries don’t impact credit scores.) Additionally, small business lenders aren’t required to disclose an APR so some loans may be much more expensive than you realize.
If you are even thinking about whether you will need financing, apply sooner rather than later. Lender requirements are changing daily and loans that may have been available a week ago may no longer be.
Also, beware of phishing sites that try to take advantage of the crisis by creating websites that look legitimate but are designed to steal user information. A related scam involves tricking desperate business owners into paying an upfront fee to “guarantee” a loan that never materializes. Make sure you only enter information on secure, reputable websites. A WHOIS lookup of the website domain name can often help you avoid these fly-by-night scams.
Tip: Consider applying through a marketplace rather than lender by lender. In Nav’s Marketplace, for example, you’ll be able to see multiple options at once and get information on which ones are a better fit for you right now.
3. SBA and Government Loans
There are a variety of loan programs available to small businesses, including SBA loans and state bridge loans. (There is also proposed legislation to make SBA loans more accessible and affordable but at this point, it has not yet been enacted.)
The SBA’s Economic Injury Disaster Loan is perhaps the most well-known option currently available. It’s currently available to business owners in more than two dozen states, but more are getting approved daily so their citizens can access this low-cost funding. The interest rate is 3.75%, or 2.75% for non profits, and payment terms can be extended to as long as thirty years. These loans can be used as working capital to cover payroll, accounts payable, fixed debts, and other bills that could have been paid had the disaster (in this case, coronavirus) had not occurred.
Note that it can take a minimum of 21 days to get approved for funding and the initial disbursement will happen within five days after closing documents are signed. This means you will want to look into other more immediate funding options if your business can’t wait that long.
Tip: Contact your local Small Business Development Center (SBDC) for help preparing your application. They will help you avoid mistakes that could move your application to the back of the line.
