There are instances where business owners experience a financial crunch and are burdened with unexpected expenses. In such situations, it gets challenging to raise money to cover the financial needs. Is your business credit card maxed out? As a small business owner, you might have an option to borrow money from friends or family. However, not all people are comfortable to take this step. This is where cash advance loans come in!
Many people do not think positively about a cash advance loan. Over the years, there has been said much about the negative points associated with cash advance loans, but no one has yet highlighted the benefits that it offers to startups and small businesses. Therefore, if you have read several articles that showcase them in the wrong light, it is recommended to not rely on such information due to biases.
If your business is in a tight financial situation, it is advised to opt for a cash advance loan that will help you get through it. It is believed that more and more companies are leveraging the benefits offered by this financial product due to several reasons. The primary reason is that businesses get immediate funds to take care of urgent financial needs.
Before choosing cash advance loans as your financial getaway products, it is essential to understand what it is and what it offers. In this article, we will take a detailed look at what cash advance loans are and its uses, and how a small business benefits from it.
What is a Cash Advance Loan?
A cash advance loan is a type of financing where a lender provides immediate funding to business after evaluating their current wage earnings and other financial related documentation to ensure that they can repay the borrowed amount. Majority of the lenders required recent financial statements that are the evidence of your average monthly earnings to determine whether you qualify for cash advance loans or not. In emergency situations, it is considered as one of the fastest ways to get cash to take care of necessary financial obligations.
How a Cash Advance Loan Works
Many people believe that a cash advance loan is an actual loan. It may sound like you are obtaining a loan for your business or personal needs, but it is not. The way in which the entire funding is set up plays out differently. One of the essential types of cash advance loans are merchant cash advances where lenders are interested in buying out a chunk of your future credit card sales, and in return, they provide immediate cash.
A merchant cash lender will advance for an agreed amount which you are required to repay over a specified period.
It all depends on the lender you choose – some companies are feasible in working with your existing merchant payment processor. In other cases, the lender would want you to switch your payment processing system.
If you are a business that generates average monthly sales of over $5,000 or more and accepts credit card payments, they are eligible for this product. The only downside, which also is considered as a benefit, is that a certain percentage of your daily sales will be deducted from your daily cash flow.
Reasons why you need cash advance loans
Almost every business has gone through times where they were going through a rough financial patch. Irrespective of the business size and profit margins, there are instances where a business owner struggles to make both ends meet. Majority of the small businesses are passing their days’ paycheck to paycheck. Therefore, if there are unexpected expenses, it may get difficult to cover them when you are already on a budget. This is where you can significantly benefit cash advance loans such as a merchant cash advance. Within a matter of hours or days, you will have the required capital in your account.
If you are wondering whether a cash advance loan is a viable option, here are some of the best uses of this type of financial product:
Credit Card & Overdraft Debt
Utilizing business credit cards has become one of the most used unsecured short-term loans to take care of their financial needs. In the end, they are low on cash to pay off the credit card payments. More and more businesses are now making use of cash advance loans to pay off the high-interest credit card debt. This is also resulting in the poor credit history.
Businesses can keep the lenders, providers, and creditors satisfied by paying off outstanding debts at the earliest using a cash advance loan. Making late payments result in a reduced credit score that might make it difficult for them to obtain future financing. In such situations, receiving a cash advance is a viable option.
As a business owner, if your company has a bad credit score and history, this type of financing can help you obtain funds whenever required. Unlike traditional lenders such as banks and other financial institutes, these lenders only want assurance if you can repay the borrowed amount in time.
With a cash advance loan, you can easily get access to the money required to take care of the abovementioned things for your business..
Cash advance loans can help you pay off the deductible so that you can easily get your working vehicle back on the road at the earliest.
Avoiding Late Fees
As a small business owner, there are chances that your business credit card is maxed out. When you are low on cash, you might be looking to make payment when you do not have sufficient funds. It is important to know that banks or other financial institutions are best known for charging inflated fees for late payments. Using this type of financial product, you can pay off the entire bill at the earliest to avoid late fees.
Whether you are a small business, established a business, or an individual, the unexpected expense can happen anytime – and in such situations, you need to have sufficient funding to take care of it. However, there comes a time when you require an extra infusion of cash to get through the month. It might have happened multiple times where you ran out of money before paying the monthly dues. Before you are hit by a financial crunch, it is essential to learn about cash advance loans and how they can efficiently help you get through a rough patch.
There are instances where a business is performing well, sales are coming, and revenues are higher but, before the revenues come in, there is a need to get fast cash to grow a business or manage other daily operations. It is precisely where Merchant Cash Advances (MCAs) fit in. All you have to do is leverage your future credit sales for the working capital required today. Merchant cash advances help you get the small business funding you need along with the boost to do business efficiently. It is a quick and reliable option that can be availed to manage business expenses.