Securing Business Cash Advances

While starting your own company and being your own boss is the ultimate American dream, flooding your startup business with bank loans may turn that dream into a financial nightmare. One funding alternative gaining ground for small business owners is a business cash advance.

Not everyone is eligible to receive a cash advance for their business, however, and a cash advance gone wrong can be just as messy as mounting bank loans. This article will help you discern whether this is the right option for you as you begin your business, and if it is, how to secure a cash advance so you can begin the startup process.

The Basics of Business Cash Advances

A cash advance is not a business loan. It is an advance of money based on how much a company expects to take in through credit card receipts. The repayment plan is also based on your monthly receipts.
 
Unlike a standard bank loan with its fixed payback amount, a business cash advance is repaid by withdrawing a percentage of your business's credit card transactions for each month. This means that during lean months, your payment amount will drop.

The Advantages of Business Cash Advances

Unlike the application process for a business loan, business cash advances are often processed quickly and have fewer requirements for approval. Some of the many advantages of cash advances include:
  • Flexibility with bad credit: With business cash advances, bad credit is no problem. Startup businesses that don't qualify for traditional business loans often find themselves on the receiving end of an approved cash advance. This can be a lifesaver for a company still struggling to prove itself in the marketplace.

  • No late fees: Business cash advances don't charge your business any late fees or similar penalties. This also means that you don't have to worry about any unexpected surcharges or surprises.

  • Protection against default: Since the payback plan involves withdrawing a percentage of your credit card receipts, rather than a fixed payback amount, your startup business will be protected from default during the months when revenues naturally dip, as you will only be paying what you can afford.

The Downsides of a Business Cash Advance

While many startup businesses prefer the flexible repayment schedule offered by cash advances, they do have some drawbacks. The primary disadvantage of business cash advances is the payback plan.

A business cash advance isn't a loan but it isn't free. Unlike those birthday checks that arrive from rich relatives, business cash advances involve a payback plan. As a result, if your receipts don't live up to your expectations, you could have difficulty repaying other debts.

Similarly, because the repayment fluctuates with your revenue, business cash advances make it difficult to stick to a strict budget. While a fixed payback plan allows you to budget out the money you need for repayment, business cash advances are constantly changing, which means that your budget will also fluctuate from month to month.

Shopping for a Business Cash Advance

Securing a business cash advance can be as easy as opening a merchant account. They are available to retail, restaurant or service businesses that accept credit cards as a form of payment. Qualifying receipt amounts vary, but some companies require a minimum as low as $1,500 a month. This makes cash advances a reasonable alternative for many startup businesses.

Where to Shop For a Business Cash Advance

Choosing the right financial partner can be as important as choosing the right business partner. Since the number of companies offering business cash advances has increased, a startup business has many options when considering this type of funding. Look for a company that caters to your type and size of business. Also, be sure to compare interest rates.

Alternatives to Business Cash Advances

While a bonus to some, business cash advances may not be the best solution for all startup businesses. Here are some alternatives for the cash strapped:
  • business loans: If your startup business qualifies for a low interest rate, you may prefer the benefits of a fixed monthly payback plan associated with business loans.

  • find a "friendly" loan: Rather than approach a bank, some start-up businesses turn to friends and relatives to help out with startup costs. In many cases, these loans can be interest free with flexible pay back plans.

  • money in the bank: According to the U.S. Small Business Administration, a majority of startup costs are financed by savings or other personal assets.

If being your own boss has always been your dream, securing a business cash advance may just be the way to turn that startup business dream into a financial reality.

Resources

Business Finance (2008). Business Cash Advance. Retrieved February 28, 2008, from the Business Finance Web site: http://www.businessfinance.com/.

Express Funding Group (2008). Business Cash Advance. Retrieved February 28, 2008, from the Express Funding Group Web site: http://www.merchantloans.com/.

Harroch, Richard D. (2008). The Best Ways to Finance Your Business. Retrieved February 29, 2008, from the Score Web site: http://www.score.org/.

Merchant Advisors (2007). Business Cash Advance. Retrieved on March 1, 2008, from the Merchant Advisors Web site: www.onlinecheck.com/business_cash_advance.html.

Merchant Partners (2008). Business Cash Advance FAQ. Retrieved February 28, 2008, from the Merchant Partners Web site: http://www.merchantpartners.com/.

U.S. Small Business Administration (2008). Small Business Planner. Retrieved February 28, 2008, from the Small Business Association Web site: http://www.sba.gov/.