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What is a Cash Advance: An Alternative Solution to the Small Business Loan

If you are ready to launch or expand your small business, one of your biggest concerns may be obtaining the capital required to make it happen. Without the right funding those dreams cannot become a reality, but what if obtaining a small business loan is not the right option?

Banks have plenty of hoops for you to jump through when it comes to obtaining a small business loan, scrutinizing everything from your detailed business plan to your credit report. Today’s savvy entrepreneurs and small business owners are skipping the game of hoops at the local bank and seeking alternative loan solutions to fund their ambition.

Finding funding that is fast and obtainable

According to a recent article at Forbes.com, there has been a void in funding for many small business owners since the economic downturn of 2008. Banks eliminated several loan options, tightened their credit requirements, and began to focus only on small businesses with a pristine credit profile. But, today there are a few options outside the typical small business loan that can answer to your need for business funding.

Are alternative options right for you? Consider whether the following is true:

  • Your credit is good but not stellar. Your business has had ups and downs and because of this, you have concerns that you will go through the entire tedious loan process at a bank and possibly be turned down.
  • You are ready to move forward now. Cash was needed yesterday, or at least in the next week or two. Time is of the essence for your plans to be put into action.
  • Your business is doing well, but it is fairly new so you don’t have an extensive history to show the bank. You need someone to look at the overall health of what you created and trust in your ability to take it even further.

If you agreed with any of the statements above, then it is time to look at what other options are available. According to Business News Daily, alternative funding is a good fit even if you qualify for a small business bank loan. Since many small business owners are driven by their entrepreneurial mindset, basically where they see an opportunity for growth and want to seize it, they need the funding process to move quickly. With alternative business funding, what used to take several weeks or a couple of months can now be done online in a day or two.

Merchant Cash Advance

A Merchant Cash Advance is an unsecured funding option that is based upon the volume of sales and the health of your business as a whole. Essentially, you are not judged strictly by your credit score, the number of years you have been in business, or how articulate and detailed your business plan is. A Merchant Cash Advance grants you the money you need, which is paid back based upon a small, set percentage of your business’s daily credit card processing receipts. The payments are not a fixed amount; they are based on the sales volume of your business as it ebbs and flows.

Unlike the requirements of time and collateral that the bank seeks, this type of funding provides the financial infusion that allows your business quick growth and answers to immediate needs. The decision for your cash advance is typically made within two business days and your credit score is not part of the approval process.

Lines of Credit

Similar to using credit cards, Business Lines of Credit means a lender lets you borrow money up to a certain set amount. This means you only borrow exactly what you need and your interest is based upon what you borrowed, not the full amount available. Like credit cards, lines of credit are typically unsecured so you don’t have to have any collateral and extended repayment time-frames.

Micro-loan Programs

Offered through the Small Business Association (SBA) the Micro-loan Program provides loans to fledgling small businesses or those demonstrating new growth. The loans, typically less than the $50,000 cap, are made through nonprofit organizations or intermediary lenders. Business owners can use the funds for working capital or to purchase equipment or machinery, furniture, inventory or supplies. But there is a stipulation that the loan cannot be used to pay pre-existing debts or for acquiring real estate. The loan repayment terms are based upon the amount borrowed, the purpose of the funds, stipulations from the intermediary lender and the needs of the small business borrower. The SBA micro-loan has to be repaid within six years.

Working Capital Loans

Working capital loans are best for the short-term needs of businesses in need of funds to support their operation. Essentially, they are utilized to make payroll, purchase inventory, or pay daily bills. These types of funds are not designed for purchases that require long-term payback time, like buying large equipment. Working capital loans often come with higher interest rates and can be found at banks and alternative lenders.

Equipment Loans and Leases

An equipment loan or lease strictly provides cash for purchasing or leasing equipment. Everything from computers to copy machines, to machinery or tools can be funded through this method. Essentially it allows a business to spread out payments on all the equipment they require, rather than coming up with it in one lump sum. These loans are often easier to obtain because the equipment itself serves as the collateral needed for the loan. If you default on the loan, the lender can seize your equipment.

Personal Investment/Credit cards

This is where you invest everything you have personally saved, assets and cash into the business or you fund your small business through using a credit card. This option is very common but is the least desirable funding option because it puts your personal finances at risk if the business fails. If you cannot keep up with the credit card payments, it will negatively affect your personal credit rating.

Angel Investors

Finding an angel investor is an alternative funding method typically used by young companies that are demonstrating substantial growth possibilities. Be prepared that finding an investor can prove challenging and you will be giving up a large chunk of future revenue with this avenue of funding. Investors typically look to get a 20 to 25 percent return on their investment.

If you are seeking an alternative to the small business loan, there are several funding options available to help you succeed. Ask questions and consider which option best suits the needs and time-frame your business requires as well as the risks involved. You can make your business dreams a reality and Credibly can help. To get started, fill out our pre-qualification form or speak to a member of a customer success team at (888) 302-5744.