What is the difference between a fast business loan and a regular business loan?
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Sometimes, you need to get money for your business quickly. Whether you’re trying to pay bills or take advantage of an opportunity that requires extra cash, you can’t spend time waiting for a lender to review your application, decide whether to approve it and to send funds to your bank account.
If you find yourself in that position, you might need to look for a fast business loan.
Traditional vs. fast business loans
The best fast business loans can offer lending decisions within a few minutes of applying. Most fast business lenders are online lenders specializing in streamlined applications that can help get you funds the next business day or within two or three days. This is often much faster than loans found at banks and credit unions.
We’ll break down the key differences between traditional and fast business loans.
Speed of approval
Speed of approval is one of the first differences you’ll notice between a fast business loan and a traditional business loan.
Fast business loans are all about speed. Most lenders use automated systems that can quickly review your application and business details and provide a lending decision in just minutes. That means there’s no long waiting period for you to wonder whether you’ll get the loan. If you’re denied, you can move on to the next lender.
Traditional business loans from banks can have longer approval processes. Once you submit your application, your loan enters the underwriting process. Traditional lenders may use automated underwriting tools or have someone manually review your application, which can take a few days. If you opt for an SBA loan, the approval process can take months.
Getting approved quickly isn’t all that helpful if you don’t also get access to the money quickly. If you’re looking for a fast loan, you need to get money in your hands quickly to cover your financial needs.
A fast business lender usually offers next-day funding if you apply early enough in the day. Some lenders even offer same-day funding, which can greatly benefit cash-strapped companies.
On the other hand, traditional business lenders could take longer to fund your loan. Many also offer next-day funding, but that approval could take a few days. Others can disburse the funds a few days or a week after approval.
Every lender is free to set its own eligibility requirements. Some prefer that you’ve been in business for a few months or years before you apply for a loan while others are more interested in your business revenue.
Many fast business lenders are online lenders. They may have less stringent requirements than traditional business lenders, though that isn’t always true.
For example, Bluevine offers same-day loans but requires that you’ve been running for at least two years and have $40,000 in monthly revenue. Fundbox, on the other hand, is more willing to work with startups.
Many traditional business loans come from banks or credit unions. They may have stricter eligibility requirements, including longer time in business and higher credit score requirements.
Fast business loans tend to have shorter repayment terms than some other types of small business loans. This is especially true for lenders with relaxed eligibility requirements that are open to working with business owners with bad credit.
Depending on the type of loan, some fast business lenders will ask for repayment within a year or two, even on term loans. Online lenders that offer business lines of credit and merchant cash advances may also require you to repay your loans on a weekly basis.
Traditional loans tend to have longer repayment periods. For example, lenders like Wells Fargo offer long-term lines of credit with no annual review or a five-year annual renewal. This can be far longer than some fast lenders that only offer one- or two-year draw periods on their lines of credit.
Rates and fees
One of the drawbacks of fast business loans is that you often pay the price for speed. This is especially true if you don’t have great credit.
Many fast business lenders will charge higher interest rates or origination fees than traditional lenders if your company doesn’t have a fantastic credit score.
For example, Funding Circle offers fast business loans but charges origination fees from 4.49% to 8.49% and APRs as high as 45%. On the other hand, a more traditional lender like Bank of America has an origination fee of $150 and rates as low as 6.75%.
If you’re looking for a fast business loan, it’s essential that you shop around to try to find the best deal. It could save you hundreds or thousands of dollars in loan fees and interest and help you avoid defaulting on a loan.
Some fast lenders charge interest on loans using factor rates, which can range from 1.1 to 1.5. To understand how much that can cost you, check out our guide on factor rates. We’ll show you what it is, how to calculate it and how to compare it with loans that use interest rates or APR.
If your company needs cash quickly, applying for a fast business loan is probably the best option for you. But if your company isn’t a very strong borrower, you might face high borrowing costs.
Consider whether you can wait for a traditional loan, which might help you save money. If you can’t, take a bit of time to compare multiple fast lenders to try to find the best deal.
Frequently asked questions
Many fast business lenders offer approval in minutes and next-day funding, meaning you may be able to get a business loan in as little as 24 hours.
Chase only allows business owners to apply for loans in-person at a branch. Once you apply, underwriting can take a few days to a week, so you might wait a week or more before getting the funds.
Depending on the bank, a business loan can be as fast as an online lender or take weeks to approve and fund. Most banks take a bit longer than online lenders, so be ready to wait for a week or two before you get your money.