A staggering eight out of 10 Americans say they live paycheck to paycheck. Life can be even harder as an entrepreneur, since your cash flow is far more variable than people with a steady job. If you have a high accounts receivable to cash turnaround time, then you may have a hard time for a couple months after your business had a slow spurt and suddenly started gaining momentum again.
So, what happens when you run into an emergency and you have nothing in savings? A bank loan will help if your credit score is at least 670. But what if it isn’t? Many business owners have a hard time keeping a good credit score.
When you need emergency money now, you’re so desperate, you’ll do anything for quick cash.
Don’t panic. In the guide below, we cover all the bases and give you six ways to get cash fast.
How Much Financial Hardship Do You Have?
Most people run into some kind of financial hardship at some point in their lives. Whether it’s the broke college kid eating ramen trope or you’re involved in an accident and your car gets totaled, emergencies happen.
What you need to do is take a deep breath then figure out what kind of financial hardship you’re in. Did you lose your job and you’re struggling to find another one? Was your identity stolen and your bank account got wiped out?
If you’re facing a one-time situation where you need emergency money, you may have a friend or family member you can turn to. If your situation is a little more long-term and direr, you have other options.
You should be up to speed on your credit score. According to the State of Online Banking, you’re entitled to one free report a year from Experian, TransUnion, and Equifax. Review it line by line, then contact any creditors whose incorrect reporting is causing your score to dip.
FICO is an industry standard for credit scores. It’s used by banks and lenders to decide if you qualify for a line of credit. Both Experian and major lenders use FICO scores.
According to FICO’s system, the following scores determine your creditworthiness:
- 300-579: Very poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Exceptional
The next thing you need to do is take a step back and review your money management habits. You need to know how much money is coming in and going out.
Then ask yourself when will you have financial relief? You need to know when and how much you can pay if you borrow any money.
1. Take Out a Personal Loan
Traditional lenders approve loans based only on your credit score, but third-party lenders are often more lenient. Some reputable lenders even have interest rates lower than you may think.
For example, Bonsai Finance has rates and fees lower than payday loans, title loans, and even many credit cards. You don’t need perfect credit to get approved and you’ll have your answer in minutes. They’re also flexible with the loan terms and base it off your income.
If your credit score does hit that magical number of 680, your bank may approve you for an unsecured loan or line of credit.
2. Get a Cash Advance on Your Credit Card
If you have an unsecured credit card, you can take out a cash advance through most ATMs. You’ll likely get charged a transaction fee and your interest rate will be higher. But it’s a quick and easy way of getting emergency money when it has to be cash.
Read the fine print in your cardholder agreement to make sure the fees or rate on a cash advance isn’t so high that you’re making your situation worse.
3. Borrow Emergency Money from Your Retirement Account
If you have a 401(k) or IRA, you may be able to borrow against a portion of it. You need to speak with your retirement account manager for specific criteria to do so. Remember, if you do borrow against your 401(k), that amount isn’t earning you anything.
In general, the interest rates are lower than a credit card advance or even a personal loan from a third-party lender. Your credit score also won’t get affected but you may have to pay it back within a smaller window. If your retirement account is through your employer, the repayment may get deducted from your paycheck.
While this is a way to keep your financial issues more private, it comes with some consequences. If you leave your job, you’re expected to pay the entirety of the loan back. If you don’t, it’s considered an early withdraw which comes with penalties and tax implications.
4. Take Out a Home Equity Loan
If you own your home, you can take out a home equity loan if you have a major emergency. This isn’t a way to get emergency money for bills fast because it will take time to process. It’s also not recommended for smaller amounts that can get handled by a loan or cash advance.
It’s very important to understand that taking out a loan using your home as collateral is very risky. If you don’t pay back the loan the bank will foreclose on your house.
5. Sell Your Stuff
This one’s a no-brainer, right? You may have already racked your brain thinking about all those old baseball cards from when you were a kid or your grandmother’s necklace. Here’s the problem: You won’t get as much as you think they’re worth.
Pawn shops thrive around the notion that you can get emergency help in minutes at almost any hour of the day. They also know you’re desperate for cash and will take less than what you would if you weren’t in financial distress. You’re likely going to regret the decision at some point.
If you’ve thought about cleaning out your closets for a while now, consider using an online marketplace to get rid of what you don’t want. 97% of online consumers browse marketplaces so there’s a chance your items draw interest from someone.
6. Get a Payday Advance
We’re leaving this one for last and for good reason. While personal loans will allow you to make installment payments over a period of time, payday loans want their money on your next payday.
They also charge enormous interest rates. For two-week loans, they’ll charge anywhere from 390-780% interest.
You should only consider a payday loan if you can pay it back on your next paycheck without causing more financial hardship. Many people fall into a cycle of paying one payday loan back and turning around and taking out another to make up the difference.
Take Back Control
Don’t let a financial crisis now dictate your financial future. If you need emergency money, make sure you’re not acting out of desperation and are thinking with a clear head.
You now know your options. You only need to find the best one for you and your situation.
If you need more help figuring out your finances, taking out a loan, or how to fund your business, check out our financial blog.