There’s a difference between borrowing money as part of a long-term refinancing or expansion plan, and borrowing money because you desperately need to because of short term issues. In the first scenario, you can afford to be relaxed about how, where, and when you apply for lending. In the second scenario, time is probably of the essence, and you’re more worried about getting cash in quickly than you are about the long term consequences of your unplanned borrowing. That doesn’t mean you have to grab at the first offer of finance you’re offered, though.
Even in an emergency, there are usually options available, and places you can turn to. You owe it to yourself and the future of your business to consider those options before you make any decisions about lending. Getting the wrong deal might make things better right now, but it could cause further problems at a later date – and who’s to say whether you’ll be able to overcome those problems when they arise? Take a second to slow down, and don’t agree to take on any lending until you’ve considered the possibilities below.
Your Own Bank
The financial institution that you bank with might not be specialist lenders, but they still know you and your financial habits a lot better than anybody else does. If the short-term issue you need to borrow money for really is a short-term issue, they’ll be able to see that from your history of incomings and outgoings. They should also be able to tell whether you’re likely to have sufficient income in the short and mid-term future to pay off any credit they agree to make available to you. Not only that, if your bank is able to help you out by immediately providing you with an overdraft, it will probably come with a lower cost in terms of interest than any other method of lending.
While this is the easiest way to solve the problem, it’s often the hardest one to make happen. Banks are conservative when it comes to lending, and if their algorithms don’t like your lending application, you’ll be rejected no matter what the common sense option seems to be. It can sometimes feel a bit like you’re playing online slots. Everybody knows that there’s a way of getting money out of playing slots, but nobody can guarantee that they’re going to be able to do it. An online slots game will show you what a winning like looks like, but won’t help you to achieve one. In the same way, your bank might be able to show you their overdraft deals and the list of requirements needed from you to achieve one – but if you can’t come up with those requirements, you won’t be getting any lending.
Tapping Into Pension Funds
Your pension pot is supposed to be there to assist you when you retire, but the money doesn’t necessarily have to be used that way if that isn’t what you want to do with it. Some people don’t plan on retiring. Other people would rather have more money now because they need it, rather than storing it up for a time in the future when they don’t know whether they’ll need it or not. More and more Americans are accessing their 401K schemes early. More Americans than ever are also failing to pay into their pension schemes in the first place – which is another matter – but we’ll assume you’re not one of them.
We’ve mentioned American 401k schemes, but similar schemes apply in most countries, and the money inside them is technically yours. You should have access to it, and if you’ve been paying in for many years, it might be quite a substantial sum. So long as you have access, there shouldn’t be an issue with you taking a lump sum out of it – you just have to be very conscious of what that means for your future and your retirement. You’re borrowing from your future self.
There may not be a form of lending quite so badly mislabeled as ‘microloans.’ The word ‘micro’ suggests that they’re very small, but in reality, they can be as much as $35,000, and sometimes even more than that. To a large company (or a large bank, for that matter), a sum of less than $50,000 is chump change. To a small business struggling for survival or facing a crisis, though, it can be the difference between staying afloat or going under. What’s not a big deal to them can be a very big deal to you – but you can use that fact to your advantage.
Because these ‘small’ loans aren’t viewed as high risk by the lenders who offer them, the criteria for applications tend to be far less stringent. If you have recent credit issues or have difficulty demonstrating your income in a way that would satisfy the requirements for a regular loan, you might have more luck with a microloan. There are even some microloans that pay out within 24 hours of an application being received – almost the very definition of emergency lending. All of this convenience has to come with a drawback, though, and the drawback with microloans is this: the interest rates tend to be very high. From the bank’s point of view, they’ve taken a risk by lending to you, and they also need to find a way to make a profit from a small loan even if you do make the repayments in full, so the interest rates might be more than ten times those you’d pay on a regular loan. It’s all a question of how much you want or need the money, and whether you can afford the inflated payment installments.
There are other avenues you might want to consider looking at, too. Perhaps you could take a business or personal credit card. Maybe you could crowdfund, or go looking for an angel investor. Whatever you do, speak to someone who has the knowledge and qualifications to guide you before making a big decision. We’re happy to share information with you, but we’re not your financial advisers. A professional will be able to give you the kind of tailored, specific advice that you need to deal with the circumstances you’re facing right now, so don’t be afraid to seek one out.