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Things You May Not Know About Business Cash Advances

business cash advances

For small business owners in need of quick access to cash to grow and establish their businesses, a merchant cash advance – also known as a “business cash advance” – is an excellent option. This innovative industry has grown dramatically over the past few years, and the stringent credit environment is spiking its demand.

Business cash advance providers are giving small business owners the opportunity to more easily get the funding needed to support their business endeavors without having to wait weeks before they see a penny, which is typically the case with a conventional bank loan.

What Exactly is a Business Cash Advance?

A business cash advance offers businesses a lump sum amount of money in exchange for a share of future credit card sales. All sorts of business niches will find this type of financing highly convenient, including retail shops, restaurants, and service companies that have strong credit card sales but might not necessarily qualify for traditional loans because of bad credit or little or no collateral.

Merchant cash advances are not loans; instead, the deal involves a purchase of future credit card sales. Instead of paying regular fixed payments, business owners allow the lender to collect a set percentage from daily credit card sales until the entire advance – and its premium – is fully paid off. Businesses benefit because the amount they pay fluctuates with their cash flow, so they pay more in busy months, and less in slower months.

When a traditional loan is taken out, there is a firm date that it has to be repaid by. They come with fixed payments that have to be made on a regular schedule. With a business cash advance, on the other hand, there is no due date or fixed payments.

Applying for a Business Cash Advance

The application process for a business cash advance is easy. All you need to do is provide certain pieces of information, such as the type of industry your business is in, how much money you need, what you need to use it for, your credit score, and how long your business has been in operation. Usually, this can be done within a few short minutes, after which it is submitted to the lender.

And it can all be done online from the comfort of your home without having to physically visit a bank. The approval process is usually very quick as well; merchant cash advance providers typically approve applications within a couple of days, with the money funded shortly thereafter.

What Can You Use Your Business Cash Advance For?

One of the greatest benefits of a merchant cash advance is that the funds can be used for a host of business expenses. There are typically no restrictions on how you choose to use your business cash advance.

Some of the more typical uses of a business cash advance include:

  • Buying equipment – Could a new computer, desk, telephone, cash register or software come in handy? Money to pay for the purchase of necessary business equipment could help boost your profits. And if this cash isn’t readily available in your account, a business cash advance can provide you with these funds.
  • Paying employees – Instead of running your business like a one-man show, a few extra hands could really help. Spending borrowed money on employee’s salaries can be the answer rather than disrupting your cash flow to cover this expense.
  • Purchasing inventory – One of the most common uses for a merchant cash advance is buying inventory. It takes products in stock to make a business profitable, so it only makes sense to invest in enough inventory to make sure you always have enough to sell to clients.
  • Expanding the business – If your business is experiencing some success, you might want to start thinking about taking things to the next level. A lump sum of cash might be just what you need to get business booming.

Of course, there are a ton of other ways to put a business cash advance to use. No matter how you decide to spend the funds, it’s important to carefully examine if the expense will generate a profit.

What Are the Pros and Cons of a Business Cash Advance?

There are plenty of benefits associated with a business cash advance, but there are also some caveats to consider.

Pros:

  • Fast cash – probably the biggest advantage of a business cash advance is the fact that you gain access to the cash fast. In many situations, money is needed quickly to cover urgent expenses. Most of the time cash or capital is delivered within a day to two of submitting an online application. This is good news for businesses that don’t have the time to wait for long processing.
  • Limited paperwork – Everything is done online, so you don’t have to get stuck with lengthy paperwork that you’d then have to fax or mail. This online application process reduces the wait time and boosts your turnaround time.
  • No fixed monthly payments – The remittances on a business cash advance may be easier, especially if sales are slow at times. Since obligations are based on a percentage of credit card sales instead of a fixed monthly amount, you don’t have to worry about draining your capital. For instance, a business cash advance of $10,000 with a factor rate of .10 would mean $150 would be deducted on $1,500 in sales, while only $50 would be deducted if sales were only $500.
  • Higher approval rates– If you’ve struggled in the past to get approved for a conventional bank loan, you’ll be pleasantly surprised at how much easier it is to be approved for a business cash advance. High approval rates from lenders who offer merchant cash advances translate to better chances of securing the funds your business needs.
  • Perfect credit isn’t necessary – This is a huge factor for many small business owners who are often unable to get the financing they need because of their poor credit score. Business cash advances provide a lump sum of cash in exchange for future credit card sales, so they’re approved with little consideration of bad credit scores.

 

Cons:

  • They can have higher factor rates – While cash can be advanced rather quickly, many times the interest rates charged can be quite high in comparison to other types of funding programs. It’s important to thoroughly review the terms and conditions so you’re aware of precisely how much you’ll have to pay.
  • They can have higher fees – Lenders who offer business cash advances can charge a number of different fees. You’d be well-advised to ask the lender about these fees upfront so you can make a more informed decision for your business.

 

Getting Started With a Business Cash Advance

At Credibly, we believe that every small business deserves the right to capital. To discover what business financing solutions are available to you, contact Credibly today. If you’re ready to see how much you prequalify for, fill out our online prequalification request form. Submitting is simple and free and will not negatively impact your credit score.