Generally, applying and getting approved for conventional business loans is a time-consuming and difficult process. For businesses that find themselves in a pinch or in need of a quick cash injection, a business cash advance may be a better option.
What Is A Business Cash Advance?
Business cash advances, also called merchant cash advances, are an easy way to get funds – fast. Instead of being strictly based on credit, time in business, and other traditional factors that establish credit-worthiness, a business cash advance primarily considers your credit card sales.
This is because the way a business cash advance is repaid is by automatically withdrawing from your bank account a predetermined percentage, called a factor rate, of your future credit card sales.
When To Use A Business Cash Advance
Bad Credit – If you have a low credit score, but consistent and high monthly credit card sales, it may be easier to secure a cash advance over traditional financing.
Need Cash Fast – Applying for and qualifying for a business cash advance is much quicker than other loan options. Usually you can be approved within 24 hours and receive money deposited in your bank in days.
Business Type – Certain business types are better qualified for a cash advance. Retail stores, restaurants, and online merchants that take credit card payments every day are more likely to qualify for a cash advance than businesses that are cash-heavy.
When Not To Use A Cash Advance
The one disadvantage of a business cash advance is that it’s more expensive than other financing products. Expect to pay an interest rate of 30% or more, which could end up costing more than a traditional loan in the long-run. However, for a short-term quick fix, a cash advance is a great alternative to conventional business loans.