There are many small and mid-sized businesses who want to expand their business but cannot always get the loans to do so. Why? Some companies have been in business for very long, their sales volume may be low or their product line is less than desirable to a bank. This is often confusing to many smaller businesses that can only grow with the right cash flow but cannot secure the money to do so until they can prove the right revenues as well as satisfy other bank lending requirements, such as a credit score.
While some small businesses can turn to the Small Business Administration or SBA for a $50,000 unsecured loan – that is not always an option either as the SBA may not grant the loan if a company doesn’t meet certain standards. That is when a company might use the concept of the business cash advance to help grow their business.
A business cash advance generally refers to a “…a variety of small business financing options …characterized by short payment terms (generally under 24 months) and small regular payments (typically paid each business day) as opposed to the larger monthly payments and longer payment terms associated with traditional bank loans.” Business cash advances were “…originally referred to one large payment to a business in exchange for an agreed-upon percentage of future credit card and debit card sales,” but now these advances are more flexible.
Experts say, business cash advances have many advantages over “conventional loans.” For instance the small business can have access to cash in a more timely manner (versus a typical loan), giving borrowers quicker access to capital. Also, the small business owner can pay based on their “sales volume” offering the small business owner the luxury of paying less or more depending on the season and their sales cycle.
In order for a small business to procure a business cash advance a recent blog in The New York Times says the lender will “…review a small business’ statements, bank statements or both, and then make (an) offer.”
While these advances can be a windfall for smaller businesses, The New York Times blog suggests that business owners should review options from multiple lenders: “Some of these loans involve a daily fixed amount taken from your account; others take a percentage of your credit card sales every day. A lender, for example, might demand 10 percent of your daily credit card receipts until you have paid back the agreed-upon amount.”
In addition, many experts say if a business is not careful they could be paying high interest rates — so read the fine print!
Many small businesses have used business cash advances to effectively grow their business when other options were not available. For instance if a business owner has a low credit score, but does well in sales, they can often qualify for a cash advance where a bank is more likely to focus on the credit score.