Business cash advances are considered to be very expensive loans with a high interest rate in comparison to a standard business loan. Today I will outline how business cash advances function in order to give you an idea of when you might use one for your business.
Purpose: The only reason you should apply for business cash advances is due to some emergency need. If you do not have emergency fund immediately available, and need to perhaps have a piece of mission critical equipment repaired or replaced, a business cash advances can be utilized.
Approval: A business cash advance is typically quickly approved because they require only that you provide the last six months of revenue for documentation. However, a standard business loan will require you to provide a detailed business plan, a high business credit score as well as extensive accounting documents.
Scope: The limited requirements of business cash advances, also limits the amount of the loan. Typically you are only allowed to borrow up to one month’s worth of your revenue at a time. You should be allowed to subsequently borrow the same amount two additional times through a process of recharging. Once you repay the each loan in full, and within the agreed upon time frame, the lender should authorize the next recharge. This can be very helpful if you need to use the service again.
Repayment: Business cash advances require repayment usually within 90 days of loan disbursement. For this reason it is clear that these loans are not appropriate for any type of long-term or large-scale necessity. If you are in need of funds for some larger project you should look into other options such as unsecured lines of credit.
Alternatives: Instead of looking first at business cash advances when you need emergency funding, attempt to secure finding through family and friends. However, I strongly urge you to be prepared for such eventualities by having emergency finds available to you through a business credit card, business line of credit or a savings account.
In conclusion, while business cash advances are an expensive way to borrow money for your company, they can be a viable option. I would suggest making a cost benefits analysis to determine if a loan with a high double digit interest is a good deal when compared to the alternative.