Business Cash Advance For Small Businesses

Being a successful business owner is challenging, regardless of how small or large the business is. Unfortunately for many small and medium sized businesses, one of the biggest hurdles to overcome is finding adequate funding to support the daily running of the venture. As a business owner, you not only have to juggle employees, clients, inventory, and marketing, but you also have to sometimes come up with a larger sum of cash to fund various solutions.

Whether you’re looking for a bit of cash to see the business through a dry spell, or you need a larger sum to purchase new equipment that will dramatically improve your products, finding that money is often a challenge.

Many banks may be wary of lending to a business because, let’s face it, they likely already have a myriad of loans taken out already. Small business loans and grants are great, but when a business immediately needs funds to get them out of a time of crisis, that’s where a business cash advance comes in hand.

Worrying about effective capital management and setting aside savings for future crises is something, as a business owner, you can hopefully do once the immediate problem is taken care of. In the meantime, securing funds quickly takes priority and, with a cash advance, is not as difficult as someone would initially think.

What Is A Business Cash Advance?

A business cash advance is a pre agreed sum of cash that is provided to the business in one lump sum. The repayment of this amount is done through the merchant providing the cash advance taking a pre agreed percentage of the credit and debit sales for the business. This means that there are no monthly repayment fees, no struggle to come up with a set payment amount, and it allows a business to carry on like normal with only a minimal amount of money being taken off the top of sales.

Different Types Of Business Cash Advances

Business cash advances are generally split into three different types based on their specific repayment method. The most popular option is split withholding, with the lock box being the least. Read about the three different types below:

  1. Split Withholding – this is the most popular type of cash advance for businesses because it represents a repayment option that fluctuates with a business. The financing company providing the lump sum receives an agreed percentage of the funds from the credit and debit card sales from the company. This allows the cash advance to be repaid based on how many sales the business actually does, rather than shorts the business overall by requiring high monthly payments regardless of how high or low sales are.
  2. Lock Box – the lock box repayment method is where the financing company has a business deposit all of the credit and debit card sales into a bank account that they have control over. From there, they remove their portion of the sales and then send the remaining profit to the business. Unfortunately this is the least preferred as it results in a delay for the business receiving payment for goods/services.
  3. ACH Withholding – the third and final repayment method for a business cash advance is with structured repayment options that are predetermined. The finance company will withdraw a set amount from the businesses checking account regularly (amount and frequency determined prior to receipt of the sum). This unfortunately results in payments being taken out regardless of the sales and success of the business.

Why Get A Business Cash Advance?

The main reason to get a small business cash advance is simple – your business is in need of money right now.

Unfortunately the problem for a business owner needing money and being faced with a cash advance goes a bit deeper than that. Many businesses that turn towards cash advances are not eligible for other bank loans, are finding themselves out of options when it comes to getting out of a rut, and who simply need money fast rather than waiting weeks for a bank to review and approve paperwork.

A cash advance for a business offers a unique option to repay through actual sales – meaning that when there are no sales being made, a business owner is not left stressing and trying to scrape up money to pay a fixed monthly payment.

Pros And Cons Of A Business Cash Advance

Pros

  • Easier to get than a traditional bank loan – with a normal loan, collateral is required to be put up, FICO scores need to be checked, proof of sales is required, and much more. Fortunately, with a business cash advance, the process is simple and requires only a few things such as the business must be in operation for two years, and it needs to process certain amounts of credit/debit payments per month.
  • Lump sum is obtained fast – waiting weeks and even months in some cases for a loan to be reviewed and approved is something that is common for business owners dealing with banks. Fortunately a lump sum can be obtained within a few days from a business cash advance option.
  • Effective repayment options based on sales – selecting a percentage of pay to be taken out of credit/debit sales allows the sum to be paid off over a long period of time and without taking too much money away from the business itself.
  • Large sums can be borrowed – whether it’s a few thousand dollars, or a hundred thousand dollars, lump sums for business cash advances range drastically in amounts and can truly help a business out of a tough situation.

Cons

  • One of the main cons of a business cash advance is that you often end up paying more percentage wise than you would with a traditional bank loan.
  • Banks are able to offer very low fixed percentages on loans, however with a business cash advance, you could pay anywhere from 5-20% depending on your eligibility, amount requested, sales, and more.

It’s important to weigh the consequences of going with a traditional loan or vying instead for a cash advance with easier repayment options.

How To Get A Business Cash Advance?

Business cash advances are available from a myriad of financing companies found all over the internet. The requirements for each cash advance financing company will vary slightly, however many of them will request the specifics to be around the following:

  1. A business must accept debit/credit transactions from Visa or Master Card and make a minimum number of payments each month (can be anywhere from $1,000 on up).
  2. A business needs to be in operation for at least two years.
  3. A business must provide bank statements and card statements for a set number of months (a few months if it’s seasonal, and up to a year for a non-seasonal business).

Getting a cash advance is easy, and there are many companies willing to offer them. Always double check the requirements, repayment percentages, and more prior to accepting any lump sum. Additionally, while a business cash advance may seem like the ideal option, it’s important to carefully weigh the decision against traditional business loans to ensure that you are making the right financial move for your company!