Emergency Business Loan Options and Covid-19 Relief

Covid-19 emergency business loans

Coronavirus relief options provided by the CARES Act include PPP loans and SBA disaster loans.

PPP loans: The reauthorized PPP provides first and second forgivable relief loans for businesses, independent contractors and the self employed hard hit by the pandemic. The loans can be used to cover payroll, mortgage interest, rent and utilities. The law passed in late December expands eligible expenses to include operation items like software and protective equipment and workplace modifications to meet health guidelines.

You can apply for the PPP through participating SBA lenders, which includes banks, credit unions and online lenders.

SBA disaster loans: The SBA is currently accepting new COVID-19 Economic Injury Disaster Loan (EIDL) applications from qualified small businesses, which includes agricultural businesses and private nonprofit organizations.

This includes businesses struggling in the coronavirus pandemic, as well as non-pandemic disasters such as tornadoes, flooding or droughts.

Benefits of online loans

Online lenders can be a strong option for an emergency business loan. They provide the speed and convenience that big banks and credit unions often do not.

Most online lender websites disclose how fast applications can be completed and how long it takes to fund a loan, making it easier to compare options by speed. Applications can usually be completed in just a few minutes, and many lenders fund loans the same day.

Other factors to compare include origination fees, annual percentage rates (the interest rate plus all fees associated with the loan) and the loan’s repayment term.

You can use a business loan calculator to estimate your monthly payments and total interest costs to determine the loan’s affordability.

Types of emergency business loans

Here are the main types of emergency business loans and how to choose which one works best for you.

Term loans: A term loan provides a lump sum of cash, repaid weekly or monthly with interest over a predetermined period. It’s an option when you need to finance a large, one-time emergency expense, like replacing a broken piece of equipment or busted pipes.

» MORE: Where to find small-business term loans

Business lines of credit: This type of financing provides 24/7 access to capital, so it can make sense for covering costs during a crisis. You get a borrowing limit (up to $250,000) that you can keep reusing and repaying, as long as you make timely payments and you don’t exceed your credit limit.

» MORE: How a business line of credit works

Invoice factoring: If you have customers who owe you money but have yet to pay, those unpaid invoices can be sold to a factoring company for a fee. However, this type of financing can be costly, and the factoring company may deal with your customers directly to collect on the unpaid invoices.

» MORE: What to know about invoice factoring

Avoid predatory loans

Small businesses can be targets of predatory lending practices, such as not listing fees and interest rates as annual percentage rates, charging prepayment penalties and offering loans with payment terms that aren't fixed.

Merchant cash advances are a type of business loan that is often considered predatory and should be seen as an option of last resort. MCA loan payments are either automatically deducted from your credit card sales or withdrawn daily or weekly from a bank account.

MCAs typically carry APRs in the triple digits. The high costs and frequent payments can put a strain on your cash flow and lead to a debt trap, where you need to take out more cash just to stay afloat.

Compare small-business loans

NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged lenders by categories that include your revenue and how long you’ve been in business.