Throughout the normal operation of your company you will run into emergency situations that require fast cash. If you have planned ahead than you should have these funds on hand, or at the very least access to cheap credit. If however you’ve exhausted these resources, it may be necessary to use business cash advances. These are not ideal in many ways, but are very fast and easy to obtain. We will discuss them in further detail in today’s article.
First, as mentioned above, these are for emergency uses only. This means you should not borrow in this way to pay for planned expenses, such as future equipment needs. If you are having trouble getting approved for traditional loans you should seek assistance from organizations such as the SBA to assist you. The reason these are for emergencies only is the rate at which you must pay them back, and the interest rate.
So what are the interest rates on these advances? Well this depends on a number of factors, typically there will be a set repayment time and you will be charged a fee that is equivalent to interest at the time you pay the loan back. This can vary widely, but typically falls between fifty cents per $20 borrowed to $1.50 per $20. If you have 30 days to pay back the money you borrow that translates to 30 to 90 percent annual interest! But sometimes this is still worth doing.
When would 90% interest be worth it? Well first, you have to remember you won’t be paying 90% for an entire year but rather 1/12 of 90% in one month. If you need to pay to replace something critical to your operation, like an integral piece of equipment, this expense can be well worth it. You need to realistically assess the need for the money against the cost. If you need to replace something that drives a large percentage of your revenue, chances are you should do whatever it takes to get it operational again.
This concept also extends to other potential impacts. Not being up and running makes your company seem unreliable and will hurt your future business. Just make sure you are using business cash advances for a very good reason. Use them for emergencies, and make sure you understand the agreement before you sign anything. As always make sure to seek professional assistance if you have any questions you aren’t able to answer on your own.