A Business Cash Advance can be described as a short term loan advance made from a financial institution such as a bank or an alternative lender to a business. It also refers to a service which is provided by credit card issuers allowing cardholders to withdraw a certain amount of cash against their available balance up to a certain limit. Often, it incurs an interest rate between 3 to 5% of the amount being borrowed.
The cash advance interest on credit cards is often higher than other transactions. This is because some purchases of items viewed as cash made with credit cards, are considered cash advances in accordance with the guidelines of the credit card network and therefore incur a much higher interest rate with no period of grace.
These purchases include; prepaid debit cards, gaming chips, money orders as well as some taxes and fees paid to the government. However, unless stated otherwise these purchases are processed as regular credit transactions.
Although they feature high interest rates or fees, cash advances are still highly attractive to borrowers; this is because they have the advantages of fast approval and funding.
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Types Of Cash Advances
Although there are different types of cash advances, the common denominator is that they are all advances on available an bank balance with rigidly high interest rates and fees. The types of cash advances available include:
Credit Card Advances
This is the most popular form of cash advance. The money in this situation can either be withdrawn from an ATM or from a cheque deposited or cashed at the bank, depending on the credit card company.
These advances have a higher interest rate which is even higher than the amount on regular purchases. An average of 24% which is about 9% higher than the average Annual Percentage Rate for purchases is to be paid. As soon as the interest starts to accrue, no period of grace is granted, meaning that as soon as the loan matures, it has to be repaid immediately by a stipulated date.
This form of cash advance includes a fee, which might be a flat rate or a percentage of the amount advanced. If an ATM is used to withdraw these funds, a small usage fee would also be charged. The credit card advance balance differs from credit payments but they can both be paid monthly. However, if you decide to only pay the minimum amount due, the credit card company is allowed to apply it to either of the balances with a lower interest rate. They can be quickly and easily obtained.
Merchant Cash Advances
These are loans which are given to companies and businesses by alternative lenders or banks. Businesses whose credit is less than perfect use merchant cash advances to finance their activities. These are then paid for using future credit card receipts or a part of the funds the business receives from sales in its online account. Rather than look at the business’ credit score, these alternative lenders focus on the credit worthiness of the business by looking at multiple pay sources.
Payday Cash Advance
This cash advance is usually issued to special payday lenders with fees and interest rates sometimes exceeding 100%. The amount of cash to be loaned is often determined by the applicant’s paycheque and government regulations. These loans are short-term and must be paid by the next payday unless the loan is extended which means additional interest would be added. These loans could also be offered by business employers to their employees.
How A Merchant Cash Advance Can Help Your Business
Often times, businesses require a sizeable sum of income to fuel growth and success. As such, if cash isn’t present, then a merchant cash advance can provide the funds needed, here are five ways taking out a merchant cash advance can help your business;
Equipment Purchasing
Every business has its unique tools and materials which make carrying out its functions easier and yours is no exception. This equipment boosts your business’ efficiency and increases production rates, in turn increasing your profit margin. However, without funds, it would be almost impossible to acquire this equipment. As such, many businesses turn to merchant cash advances to get the required funds that are to be used in the acquisition of this equipment. The merchant cash advance is great for all businesses, regardless of whatever industry and field they are.
Covering Payroll
A merchant cash advance provides funding that can be used in paying old employees and also to pay new employees. Hiring more hands makes the business production rate faster and increases productivity, therefore, rather than running a one-man show, you can hire extra employees. If you lack the funds to do this, then taking a cash advance may be the best option for you.
Buying Inventory
One source of funds for purchasing inventory for a business is taking out a cash advance. To make sales, it is necessary that goods be readily available. The funding required to stock this inventory can be provided by taking a cash advance which allows you pay your suppliers immediately and have available goods for sale to your customers. They are also perfect for stocking inventory in high demand or seasonal products.
Advertisement and marketing
Without advertisement, you business might remain unknown even if it is the most exceptional in its field. As such, it is essential to market and advertise your business as a way to improve your business’ popularity. The expenses of advertising and marketing can be covered using small cash advances.
Expansion
Despite the success rate of any business, there comes a time when expansion is needed to provide a larger market and a bigger customer base. While you might argue that you cannot afford such expansion, cash advances provide you with an advance on these much-needed funds, allowing you to carry out your business’ expansion.
It is no news that small businesses can often run out of funds required to carry out essential functions. In these situations, cash advances come into play, giving your business another source of cash flow aside its earnings. They can be more quickly obtained than other loans meaning that they can be gotten at any time, which therefore means they have a significant advantage over more traditional forms of loan.