The Business Cash Advance: The Real Deal

I’ve seen the business cash advance mentioned in various business magazines, and I couldn’t help but notice that most articles make it sound like a bad idea for small business owners.

Critics are quick to point out the fact that the business cash advance is expensive money. And most lenders will agree, there is nothing inexpensive about a business cash advance, and it shouldn’t be used unless the business owner has a plan for the money that will improve his/her business.

The business cash advance is an alternative source of business financing, meaning a source for business owners to go to when they can not receive traditional funding from banks.

But what many fail to point out, are the many benefits of the business cash advance.

Business cash advance lenders charge a flat rate for their funds. Unlike an interest rate, this amount never changes, no matter how long it takes for a business cash advance to be completely repaid. The amount of the advance, plus the flat rate is deducted over a period of time, as a small percentage from a business’s daily credit card sales. Since repayments are made as a percentage of sales rather than a fixed monthly payment, they are able to fluctuate, in an effort not to harm a borrower’s business.

An example might help make this concept a bit clearer.

Your business processes about $35,000 in credit card sales every month. You have been approved for a business cash advance and you and your business cash advance lender have agreed that 14 percent of your business’s daily credit card sales will go toward your business cash advance repayments. In other words, for every dollar a customer spends at your store (on a credit card) 14 cents will go to repay your business cash advance and 86 cents will go to you. Keep in mind you will keep 100 percent of all cash sales.

Since your business processes approximately $35,000 in monthly credit card sales and 14 percent of credit card sales are going toward your business cash advance repayments, about $4,900 a month will go toward repayment.

Now let’s say, for some reason, your business experiences a slow month and only processes $15,000 in credit card sales for that month. Your business cash advance repayment amount for that month will not be $4,900. Instead, only $2,100 will go toward your business cash advance repayment.

There are a few major points that have been left out in the talk of business cash advances. These include the facts that business cash advances are unsecured, have few requirements, are easy to renew, and are a possible means of acquiring business funds for business owners with average to slightly below average credit.

Unsecured -There is no collateral required to receive a business cash advance.

Few requirements - Usually a business owner must own a business that processes at least $5,000 in monthly credit card sales. He/she must have also owned that business for at least six months.

Easy renewal - A business cash advance can be renewed just about every three to four months (when 60 percent repayment has been completed).

Average credit OK - Those interested in borrowing do not need to have excellent credit scores to be eligible to receive a business cash advance. Most lenders will consider applicants with credit score of 550 or higher.

Now that you know the truth about business cash advances, it is up to you to take this information and decide whether or not a business cash advance would benefit your business.

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