Business Cash Advance Loans

A business cash advance is a type of business funding. It's different from a small business loan, but at the end of the day, they both accomplish, or try to accomplish, the same thing: to make working capital available to qualified small business owners. A few years ago, when the economy was great and banks had no problem lending, the business cash advance was a great fit for only a handful of business owners: those in business for less than a year or so, and individuals with awful business and/or personal credit.

Obviously, a lot of things have changed quite a bit in the past few years. Banks and other lending institutions have come to the harsh realization that they are not, as they thought, invincible (Government bailouts aside). They now know that they cannot lend money without regard to the borrower's ability to repay them. Now that they know this, they want to make sure that the rest of us know that they know this. Traditional bank lending hit rock bottom in the past few years, and it has affected more than just businesses. Even still, as the economy supposedly begins to turn around, banks don't want to take any more risk. Maybe they know that the worst of it isn't over yet. Maybe they're not done writing off all their bad assets, and want to hold off before getting into any riskier ventures. The point is, that banks are not, despite the Government's best efforts, extending credit to America's small business community.

The past year has demonstrated an fundamental change in the general quality of applications among business cash advance providers. Most of us have noticed average credit scores of our applicants inching up as much as 50 - 100 points. We've also seen the average time-in-business of our applicants rise substantially.  This is largely because many of these applicants have previously been "bankable", meaning that they've had no problems getting approved at their local bank for a business loan.  For us business cash advance providers, the biggest obstacle to locking these applicants in has been the cost of funds.  Business cash advances can carry a hefty price tag compared to that of a traditional small business loan. We talk more about it in detail in this article about small business loan alternatives.

While the cost is something that some small business owners have had a hard time accepting, there's no denying that business cash advance programs come with many benfits:

1) Unsecured and Uncollateralized

Perhaps the biggest benefit to these programs are the fact that they don't require collateral or personal guarantees of repayment. This is important for a number of reasons. First, many business owners simply don't have assets available to back a business loan. This is part of the reason they're looking for funding in the first place. Secondly, business owners don't want to have that on their shoulders for the whole duration of their loan. In this economy, nobody is certain of anything. Even if you run a successful business, it would be foolish to assume that you know what's going to happen over the next several months or years. If something were to happen to affect your ability to repay an obligation like that, the last thing you want to worry about is a bank coming after your personal assets. Even if you operate an entity with liability protection, personal guarantees give banks the right to collect anything in order to make themselves whole.

2) Flexible Payments

Banks expect you to make fixed monthly payments, no matter what. If you have a bad month, or a run of bad months, they don't want to hear excuses. They'll want that monthly payment no matter what it takes. With the business cash advance program, you pay it back by assigning a percentage of each credit card transaction to the cash advance provider. What this means is that you only make payments when you have sales, and the amount you pay back on a monthly basis is directly correlated with how much business you do. This can be a huge advantage to your cash flow. If you have a few bad months, you won't default on your advance. All that would happen would be that it would take a bit longer to pay back. The total amount you pay back wouldn't change. Interest doesn't accrue on a business cash advance the way that it does on a business loan. If you miss a payment on a business loan, they tack interest and penalties on to the total amount you'll have to repay. Business cash advances, however, come with a fixed payback amount. That means that no matter how long you take to repay it, that payback amount won't change. There are no penalties for paying it early or taking too long to repay. In fact, there's no such thing as "too long" because there's no term set to these programs.

3) Easily Renewable

Another great thing about business cash advance programs is that you don't have to repay the whole balance in order to qualify for another one. As long as nothing has changed with your business from the first time you were advanced, you should qualify for more money once you've paid down about 50% of your balance. For this reason, many businesses treat this program like a revolving line of credit. In fact, over 80% of qualified business owners take additional funds more than once.

4)  Fast Funding

Compared to other types of financing, business cash advances can be completed within just a week, or even less sometimes. This is great, especially if you're in a bind and need that money really quickly. Not only is the application process fast, but the paperwork required is minimal. Generally, all that's required is an application, your four most recent credit card processing statements, a voided check, a drivers license and a few trade references. Certain businesses, however may be required to submit some additional paperwork. It's usually limited to a few business bank statements, a copy of your lease (just the pages showing the parties to the agreement, the business location, the term of the lease and the signatures), and depending on the size of your advance, you may be asked to submit year-to-date financial statements.

5)  Unrestricted Use of Funds

Many small business lenders will require you to have and disclose a specific use for your business loan.  Business cash advance providers let you use the funds however you see fit.  Some common uses for the proceeds of a business cash advance are for payroll, taxes, advertising, marketing, rent or mortgage payments, inventory or expanding.

Business cash advance providers all have certain industries that they prefer. Some commonly preferred industry types are as follows:

1) Restaurants

Restaurants make excellent candidates for the merchant cash advance program. Banks have a hard time lending to them because traditionally they have a high turnover rate. A restaurant is more likely to go out of business in its first 2 years than most other business types. Business cash advance providers like them because of their consistent credit card processing volume. Most of them have a low standard deviation in processing volume from month to month, and they rarely go a day with settling transactions. Most business cash advance underwriters are also very comfortable with restaurant's profit margins, and they can also get more comfortable than banks with the fact restaurants don't usually report all of their income on their financials.

2) Salons and Spas

From tanning salons, hair salons to nail salons, business cash advance providers usually like advancing money to these types of business. We get a lot of applications from salons who haven't been in business long enough to qualify for a traditional business loan. They're easy to approve for similar reasons. Consistent credit card processing volume, and low average transaction size make business cash advance providers comfortable.

3) Auto Repair

Many auto repair shops are good fits for the program also. Most of their customers have to pay by credit card because many times the cost is too great to expect them to have cash on hand to pay.

4) Liquor Stores

Liquor stores are great because of their consistent credit card processing volume and low average transaction size. They're also very recession-proof, because people always drink. When times are good, we drink to celebrate, and when times are bad, we drink our sorrows away. Even if we cut out expenses like nights out at restaurants or bars, liquor stores will always be there.

5) Doctors

From dentists to veteranarians, many doctors are great for the program. Even if their credit score is less than desirable, business cash advance providers are eager to extend capital to them because they are professionals, and are less likely to default.

Any business where they operate out of a physical retail location, the customer is present at the point of sale and a signature is obtained authorizing each transaction can fit the business cash advance program. Since sales are tied to credit card revenue, any account that is easily approved by a credit card processor is ideal for business cash advance providers.

Find out more about business cash advances or small business loans on our website, and know that we are accredited with the better business bureau. That's important in the business cash advance industry. As many benefits as there are to the program, any time you're dealing with a financial product, you'll want to know that you're dealing with good people who are going to do the right thing by you. Too many people pull a bait and switch in order to get you to go with them. They promise you the world and then when it comes down to it, they make you an offer that's far from what you talked about.