How Does a Business Cash Advance Work?

07/12/2015 by Edirex

If you anticipate having some difficulty securing a business loan right now, or don’t have the time to go through such an in-depth process, a business cash advance may be just what your business needs.

With turnaround times of seven to ten days from application to cash in hand, a cash advance can fill a myriad of cash flow issues in short order. A few reasons to reach out for this type of loan would be to buy new equipment or needed inventory; meet a tax bill deadline; produce quick cash for purchasing opportunities, such as liquidations; create a marketing campaign to boost your sales.

Of course, the lender will want to know exactly how you intend to spend the money. In some cases there might be restrictions, such as only applying the funds toward growing your customer base (so they know you will have money to pay off the loan). Other lenders may not be as specific, so be sure to get a few different quotes.

Because the business cash advance is less stringent, unlike business loans or equipment leases (which require collateral or guarantors), the rates will be higher. You’re paying more for convenience. However, there are a few bottom line requirements you will need to meet. Though you are escaping the mountain of paperwork of, say a normal business loan, these qualifications will usually assure a lender that they will be repaid:

  1. You have been in business for one year, at minimum

  2. Your company has been processing credit cards for at least 6 months

  3. There are no property liens in place

  4. You have no prior bankruptcies

  5. Your office or warehouse lease has more than one year left on contract

  6. You currently have no other cash advance contracts with other companies

Though a better credit score will mean smaller rates and bigger advances, a lesser credit rating won’t keep you from getting a cash advance, as long as your financial records are solid. You may be required to switch to a new merchant account provider, as repayments involve the lender taking a daily percentage on your credit card revenues. Expect them to run a test on your merchant account for a day or two, prior to receiving your cash advance.