By Jeff S Rauth
How Much Does A Business Cash Advance Cost?
The cost of a cash advance can vary from company to company, however, there are certain criteria that will affect the cost regardless of what company you choose. It is important to note that this product is a financial tool, and just like any tool, it is not appropriate for every situation. I personally have talked quite a few merchants out of using the Credit Card Receivables method, as I felt it was not the right tool for their specific needs. Personal credit will certainly play a factor as far as cost is concerned. Understand that a merchant's Visa/MC sales is the single biggest underwriting criteria for deciding if you are approved for this product, but just because you qualify, does not mean that you qualify for the best available terms.
This financial tool does not require any sort of collateral and therefore it inherently carries a high risk for the end investor, so it is important to take the applicants personal credit into consideration. I want to emphasize that this product is not a loan and therefore you simply can't look at the cost in terms of Interest Rate. An investor is simply purchasing your future Visa/MC sales at a discounted rate. Another factor that can affect the cost of a cash advance is how long of a term the merchant looking for? Even though the merchant gets charged a one time fee up front regardless of how long they take to pay back the advance, the pace at which the merchant decides to repay the advance up front can have an impact on its cost as well.
As you can see, there are certain variables that will determine how much a Business Cash Advance may cost your business. It is important to shop around as costs will vary from company to company. As a business person, you know your business better than anyone else, therefore, you should find a cash advance company that will work to understand your needs. This will ensure that you get the cash you need tailored to meet your business needs.
Business Cash Advance vs Working Capital Loan
Raising sufficient working capital is an essential requirement for any business start-up. Moreover running a small business often calls for the need of a financial boost at times of crisis. The business cash flow can be disrupted due to various unforeseen reasons. Payment of dues, purchase of new equipment or starting new business venture might cause additional disruption in cash flow particularly of a small business. There are plenty of options for choosing the right service to acquire this capital, and this process could be quite confusing. The mode of financing is an important element that determines the success of the organization and thus an exhaustive understanding of the available funding options is almost mandatory.
Business cash advance is one of the most popular modes of acquiring essential business finance. It is almost similar to a payday loan. However, payday loan requires an individual to provide proof of employment and salary whereas business cash advance is perfect for an entrepreneur to get funds when he lacks perfect credit or doesn't have the ability to get funds by other means. The only requirement of business cash advance is that the business should accept credit transactions, i.e. it should allow it's customers to pay with visa or master cards. It is just an advance and not a loan; hence every time the business receives a payment, a part of it is automatically forwarded to meet the repayment of advance.
Working capital loan, another great way of acquiring funds is the traditional and most commonly followed method by most small business. However, it is not as easy to get funded in this mode as compared to business cash advance. Working capital loan is difficult to qualify for when compared with business cash advance as an alternative source for working capital financing. The credit score of the borrower, the available collateral and various factors are carefully considered before acceptance of working capital loan. However, most small businesses would easily qualify for a business cash advance.
Getting a working capital loan involves a lot of paperwork and quite some time. However, it is not the same for business cash advance. Business cash advance is processed much faster and it involves relatively less paperwork, thus simplifying the process of working capital financing. Moreover a business cash advance does not have a fixed repayment schedule as the case is with working capital loan. The repayment is done from credit card sales receipts and the businesses generally do not feel the pinch. However in case of working capital loan, if the borrower fails to repay the working capital loan, it might not only affect his credit score but also poses a threat of losing his collateral. Irrespective of the business volume on a particular month the borrower will need to repay the working capital loan according to the pre determined fixed amount.
Considering all these, it could be well concluded that a business cash advance is much easier option for an entrepreneur to acquire working capital financing.
Business Cash Advance Strategies
Even thriving small businesses frequently need more cash than they can borrow from a bank. One of the least-known commercial financing strategies for small businesses is potentially the best strategy to quickly obtain needed cash for growing their business. This commercial financing strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon a merchant's sales volume. These business cash advances typically vary from $5,000 to $300,000. Small businesses will frequently benefit from converting future cash flow into immediate working capital. The most likely candidates to benefit from this strategy are restaurants, bars, service businesses and retail stores.
This strategy is also known as "credit card factoring". Many small businesses have relied upon a commercial financing strategy called "receivables factoring" which allows them to sell their future receivables at a discount. Most small businesses cannot adequately document their receivables in order to qualify for this kind of commercial financing. Many other small businesses (such as restaurants, bars, service businesses and retail stores noted above) simply do not have such receivables to rely upon as a commercial financing tool.
What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business. Business cash advances up to $300,000 can be obtained based on a merchant's sales volume and future credit card sales.
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