What are Business Cash Advances?

Josie Myers

Business cash advances are short-term loans that a business owner can obtain and use for various business and personal expenses. The amount of the loans is generally small, usually only a few thousand US Dollars (USD) at most. They are unsecured business loans based on the businesses credit card sales rather than credit history.

A cash advance is sometimes necessary when a business is in a financial pinch.
A cash advance is sometimes necessary when a business is in a financial pinch.

Business cash advances are not secured by the business or owner's personal collateral. They do not require a credit check of any kind, but rather are based on the average credit card sales totals that a business produces in any given month. The lack of a credit check makes this type of loan particularly appealing to businesses with a sketchy or non-existent credit history.

A business cash advance is usually given to a business with a good credit history.
A business cash advance is usually given to a business with a good credit history.

The process of applying for business cash advances is a short one with little paperwork involved. Standard business loans are more complicated and usually are only given to a business with a long solid history and stellar credit. Many young and small businesses or those with an imperfect history have a difficult time obtaining one. Business cash advances require no business plan or complicated tax records, but only a simple application with information like the applicant's name, employment location, address and credit card receipts.

These loans do not require a fixed repayment schedule. The payment is worked out based on the flow of the business. When a customer makes a purchase using a credit card, a percentage automatically goes to pay back the loan. In this way, the repayment of the loan is entirely dependent on the volume of credit card sales. Fine print on the loan agreement should be checked, because in some cases the lender requires the loan to be paid back within a given time period or face exorbitant charges. Some can be as short as 14 days, so it is important to be sure that the business is able to pay back the loan through credit card receipts in the agreed time period.

The best part of business cash advances is that the cash is nearly instant. For a business struggling with a sudden emergency, the quick infusion of cash is welcome. Approval usually takes a day or two and the cash is received in about seven to ten days. In some cases, it can be received in as little as 24 hours.

There are a few disadvantages to business cash advances that involve fees. Generally, the application fees are much higher than other types of loans, as are the closing costs and processing charges. Interest rates are significantly higher than standard business loans since they are unsecured and higher risk loans. The loan amounts themselves are usually fairly small, so are not intended to provide a huge influx of cash when needed.

Business cash advances can be an excellent way to float an emergency cost or one-time business need. They are best used with caution, as they can sometimes have hooks intended to garner more money from a business than the owner intended. As with any unsecured loan, those who take them out should be informed on all of these risks and read every paper before signing.

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