Cash Advance Business Loans: Why, What & How
Learning about different kinds of credit and loans is an important part of any business. No business can become all that it can be without some sort of credit to help with growth, and to smooth over cash flow when there are fluctuations.
There are many types of loans and credit available, a business cash advance is just one type of loan business owners have at their disposal. Sometimes called a merchant cash advance (MCA) these loans are a useful part of a business owners arsenal when dealing with credit.
There is no doubt that with these revolutionary cash advance programs sky is the limit for the business loans industry.
How a Business Cash Advance Works
A business cash advance is essentially the sale of your future sales. Unlike a line of credit or a loan, a cash advance usually requires you to begin making payments immediately. This can be in the form of a portion of current sales, or a daily agreed upon amount.
Business cash advances aren't for everyone, or every situation. Like every loan, they have their advantages and disadvantages, and it's important to understand them before choosing them as a potential form of credit.
Perhaps the biggest disadvantage of a cash advance is that they are relatively expensive compared to other kinds of loan. A business cash advance can cost you as much as half of what you borrow in interest.
When used improperly, a business cash advance can spell disaster for your company, especially if they are used for the wrong reasons. If you are getting a cash advance because your clients are simply too slow to pay you, or sales have been scarce lately, the problem isn't something that can easily be smoothed over by one of these loans.
Cash advance loans are better for businesses who have high profit margins, and are in a temporary situation that needs to be remedied quickly, or for business owners who have poor credit and need to resolve a temporary disaster for their business.
The biggest advantage of a cash advance loan is that it is very fast. If there's a lot to gain from a loan and little time to get it in, a cash advance loan would be perfect. If for example you have just a few days to purchase a competitor, but big profits could potentially roll in if you do, a cash advance loan may work.
On the flip side, if your normally highly profitable business suddenly experiences a disaster, and you need a loan to handle it so business can continue, losing profits for a few days in order to pay back the loan is better than losing the business entirely.
Cash advance loans shouldn't be used as a standard line of credit if a lower interest method can be used, but they do have their place in emergency situations, or when big opportunities are present.
In order to best use this type of cash advance, you need to be aware of how they work, and when to apply them. A business cash advance can be good for your company, as long as you understand them.