Today we will discuss some basic information to understand about business cash advances. By the end of this reading you should understand their intended use, the common use, and some important information about what to expect. By following this advice you can make a rational decision about what choices to make when it comes to this type of loan.
It is important to note that cash advances are intended to be used for emergency purposes only. They can be a very fast way to obtain the cash you need, but they are also very expensive. Typical rates average between 25 and 100 percent annual interest. Of course you should only be paying this rate for a month or less, but it’s important to consider the cost of the loan when deciding whether or not it is a good option for you.
Another thing you need to consider is whether or not you are simply replacing one problem with another. Will you have the necessary funds to pay back the loan when it becomes due or are you just pushing the problem down the road a bit? If you don’t have a clear plan for repayment, you should definitely use other resources instead.
So when would be a good time to borrow at these extremely high rates? This depends on a number of factors, including those mentioned above, but essentially you should ask three questions. First, do I have better options available to me? Second, am I paying for something I absolutely must pay now, rent might be a good example of this. Finally, will my circumstances change in some way before the loan is due so that upon that date I will have the money to repay the debt? If you won’t have the money to pay off the loan by the due date, you will be trapped in a vicious cycle of borrowing to pay off previous debts, each time owing more and more in interest and fees. This is definitely not where you want to be.
You should only use cash advances as emergency funding, only for things you need never for things you simply want. You should always explore your other options first; can you borrow money from family and friends? Finally, you should only borrow if you can pay back the debt I full on the due date; never let the balance roll into a new loan, the problem will only get worse.