Navigating pandemic-era financing options

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Covid-19 has wreaked havoc on all of us and many business owners are wondering how to navigate future variants and lockdowns. Due to the severe impact on the economy, you may be wondering how to generate cash for your small business and stay strong during the pandemic.

Fortunately, if you know your loan options, you have fantastic opportunities to borrow the money you need to move your business forward. All you need is the knowledge to navigate your liquidity options and the resources to connect you with the right loan provider.

This article will cover the most popular loan options for small business owners looking to generate cash during Covid-19. We’ll cover six options for accessing short- and medium-term capital, listing the pros and cons of each.

Short term loan

Short-term loans offer versatility and flexibility to small business owners. With this option, businesses borrow money based on cash flow that they plan to repay at regular intervals with interest. In general, short-term loans must be repaid within three to 15 months and range from $2,500 to $500,000.

As an unsecured loan, short-term loans don’t require collateral and give small business owners plenty of options for how they use their extra cash. However, because they are unsecured, these loans have higher interest, offer less money and are more difficult to obtain from traditional banks.

On the one hand, short-term loans present a low risk for the borrower because they generally do not require collateral. Additionally, these loans provide flexibility in spending cash, such as buying equipment, managing cash flow, or paying off credit cards to improve credit. But on the other hand, higher interest rates and short loan repayment term are the major trade-offs for the versatility of short term loans. And traditional banks often avoid offering these loans to business owners because of their risk, although alternative lenders are less risk averse.

Medium-term loans

Unlike short-term loans, medium-term loans are not as flexible but allow repayment over two to five years. Typically, these loans have a fixed interest rate with monthly installments, and the borrower must agree to the lender’s repayment terms before receiving the loan. Although the interest rate is not as high as that of short-term loans, depending on the length of the loan and the amount borrowed, the rates can vary between 5% and 30%.

Mid-term loans are best for businesses with good credit that are already established and ready to expand. The payback period and flexible interest rates provide small business owners looking to scale a unique opportunity to get the cash they need.

The positive aspect of this strategy is that a flexible repayment period allows for consistent loan repayment and borrowers can prepay the loan without penalty. Plus, fixed interest rates throughout the repayment period provide even more consistency for repayment.

However, businesses generally need at least two years in business, a 650+ credit score, and $250,000 in annual revenue, and banks aren’t rushing to offer these products to businesses either. .

Credit line

Business lines of credit (LOC) offer the most flexibility in terms of liquidity. Rather than taking out a fixed rate loan, borrowers have a pool of capital to draw from and repay as needed. You can tap into the money at any time and you only have to repay what you have borrowed at the agreed rate.

Due to the unintended consequences of Covid-19 on businesses, access to LOCs makes them a desirable option for entrepreneurs – and LOCs are easier to obtain than traditional loans. Unfortunately, letters of credit offer higher interest rates, less cash, and higher risk for the lender.

They also need a good credit score and annual income, or collateral, to qualify, and they may require setup fees and ongoing paperwork to ensure your business is in good standing.

Personal loans for your business

Similar to letters of credit, personal loans are a great option for covering short-term expenses and meeting emergency cash needs. The main difference is that these are loans with a fixed withdrawal amount and a repayment plan. Since personal loans are unsecured and do not require collateral, they are harder to obtain and have higher interest rates than longer term loans.

Despite this, as long as you qualify, you can receive the money within days and have the flexibility to use your cash for whatever your business needs. However, these loans require a 700+ credit score and at least $50,000 in annual personal income, and the interest rates are higher because they offer more risk to the lender.

Equipment financing

For businesses that use a lot of equipment and frequently upgrade and replace that equipment, equipment financing is a great way to add much-needed cash. These loans are specifically designed for important equipment such as vehicles, printers or restaurant ovens.

Equipment financing involves taking out a loan for the equipment in question and using the equipment as collateral for the loan. If, for example, you are approved for 75% of the cost of the equipment, you can purchase the equipment for 25% and repay the borrowed amount with interest and principal.

With this strategy, business owners can be approved for loans of up to 100% of the value of equipment with low interest rates and financed within 48 hours, and borrowers can repay financing from equipment up to 10 years or more. But be aware that defaulting on the loan will result in repossession of said equipment, and these loans often require a minimum credit score and unpaid income for two or more years.

0% business credit card stacking

Stacking business cards can be a great way to access and move cash, depending on your credit. Rather than acquiring a large unsecured line of credit, you apply for several 0% interest credit cards, then put your business expenses on those cards where you can pay them off without interest. You can even use this method to prepay high interest loans and build credit quickly.

This strategy allows the borrower to enjoy the flexibility of moving their money around to pay off multiple expenses. And it can be an effective way for savvy business owners to build credit and pay off larger loans without interest.

There’s a big downside: Stacking credit cards can temporarily lower your credit score when multiple lines are open, and not paying them off can cause your score to drop significantly.

Jake Labate is president and Michael C. Davies is creative writer at, a Westport-based marketing solutions company. An earlier version appeared on the BitX Funding blog.

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