Fast Loan
Managing quick cash responsibly
By Marilyn Lindblad
A fast cash personal loan should not be used to start or support a small business unless the small business owner has conducted a risk-benefit analysis, which compares the costs associated with the fast cash loan with the risk to the business of not having the money from the loan.
What is a fast cash loan?
A fast cash loan is an unsecured, short-term, low principal, high interest loan. These loans are sometimes called "fast payday loans" because they are made for terms of 14 days to 30 days, and are primarily used as personal loans by low income individuals to bridge the gap between "the end of the money" and the end of the month. Lenders make these loans based on the borrower's having proof of employment - usually a pay stub - and a bank account.
Why get a fast loan for a small business?
Although fast cash loans originated as personal loans, entrepreneurs are increasingly using them as sources of start-up money for small business. Financial experts agree that small business owners should never use fast cash loans to fund speculative investments; however, there are certain narrow circumstances when it makes sense to use a fast loan to support or start a small business.
For example, if an entrepreneur would otherwise miss the opportunity to purchase deeply discounted merchandise that is certain to sell quickly at a high profit margin, a fast business loan might be the only way to generate the cash needed to buy the merchandise.
Fast loans also make sense as a way to avoid penalties that are harsher than fast loan fees. An example would be to get a fast cash loan to make a payroll tax payment. Again, the business owner must assess the impact of the severe fees and penalties that will be assessed against the company for not making the payment versus the fees and interest costs associated with the fast cash loan.
These are just two examples of times when it may make sense to use a fast loan to fund a small business. The risk-reward analysis is integral to deciding whether the decision to use a fast loan is a smart one.
Using fast loans responsibly
Fast cash lenders have been criticized by many because of the high interest rates and fees that they charge. Borrowers get in trouble when they need to extend the due date for the loan. Interest gets compounded on past-due interest and late fees, and all the fees add up quickly and multiply exponentially. Small business owners may be surprised to find themselves in debt, suddenly owing several times the amount they borrowed.
On the other hand, a fast cash loan can be a legitimate source of funds for a small business if the loan is repaid when it is due.
If a small business owner does not have the time or the credit-worthiness to borrow money from a conventional lender or venture capital firm, a fast cash loan may be the only way to realize an important opportunity that otherwise would be lost.
