In the past, whenever a small business was looking for a loan, they would turn to their bank who would almost blindly hand them over the money. This isn’t the case anymore at all, with banks and other traditional lenders having increasingly stringent acceptance criteria. However, small businesses still need additional finance from time to time and this has opened up the market to a range of alternative financing providers, including those offering business cash advances. There are pros and cons to this type of financing which we will review. However, what is most important to remember is that systems need to be in place to allow small business to borrow money to allow them to survive. After all, they make a huge contribution to the economy, both in import and export, market exchange and providing jobs.

What Are Business Cash Advances?

So what is this type of business financing? Basically, with business cash advances, a lump sum payment is offered in return for a share of sales to be made in the future. They tend to me mainly available for restaurants and retail businesses as well as any other businesses where customers pay mainly by credit card. This is because it is the future credit card sales against which the loan is provided. Generally, only companies that have no collateral or those with bad credit ratings apply for business cash advances, mainly because it is a very expensive form of financing. However, we do have to consider that at the very least, it allows small business to get a hold of the necessary capital to ensure they can remain afloat, have the capital necessary for growth and continue their contribution to the economy.

How Do Business Cash Advances Work?

When you apply for a business cash advance, you will need to produce statements of your previous credit card sales. In the past, business cash advances were only available to those who had at least six months to a year of previous credit card statements, but this has gone down to just three months with certain business cash advance providers. However, business cash advances are not suitable for businesses that require money in order to start their business up. The cash company will then calculate how much a business can borrow against their future credit card sales, generally no more than 150% of their monthly sales figure. A special credit card terminal will then be provided to the business, through which every single credit card transaction will go. A percentage of each transaction – usually between 8% and 14% – will go straight to the cash advance provider. The outstanding balance will always include the initial borrowing fee, as well as the interest amount. Usually, these are classed as short-term financing, with a period of around six months to a year.

The Pros And Cons Of Business Cash Advances

There are quite a number of disadvantages to this type of lending. Business cash advances are pretty expensive compared to other types of business financing. Cash advance providers are trying to escape scrutiny by promoting industry standards. The cost of this financing is high, with equivalent interest rates being between 60% and 200% APR depending on credit and industry type . This is why it is very important to understand what the costs of this type of financing is and why it should only be used if no other options are available to the business. It is always advised to spend some time comparing the market via comparison websites, initially to find the best type of financing and then to find the best deal within that type of financing.

There are advantages to business cash advances too. One of the main advantages is that they are one of the few types of financing that are available with credit difficulties. Secondly, because the payments are taken out of credit card sales automatically, there is no need to keep money aside for monthly payments. If one week, sales are slow, less actually money is taken out of your sales and in a good week, businesses are able to pay back more of their obligations.

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