Often, business cash advances are lumped in with loans when financing options are discussed. However, business cash advances are not defined as loans because they have some important differences that distinguish them from loans. These differences make business cash advances an advantageous option for many businesses.
How Business Cash Advances Work
Business cash advances work like this: the provider purchases a chunk of the business's future sales, but it does so at a discount. In other words, the provider might buy $100,000 of sales at a discount of $20,000. The business owner gets $80,000 in cash, but has to pay the provider back $100,000 from future sales.
The repayment process is easy. The advance provider automatically debits a fixed percentage of the business's sales each day until the full amount is reached. The discount amount represents the fee a business owner pays to get the lump sum of cash, which can be used for any purpose.
How Business Cash Advances Differ From Loans
The differences between business cash advances and loans are numerous, and many of these differences benefit the consumer.
Business cash advances are dispersed faster. Bank loans can take weeks or months, but most advances take a week or less, so the business can act faster on opportunities or dire needs.
Business cash advances are easy to use and repay. The automatic nature of repayment makes it easy to manage -- no confusing statements or due dates to remember. The lower chance of default makes it possible for providers to offer advances to those with less than perfect credit if their sales track records are good.
Business owners with less than perfect credit can still qualify. Because providers generally focus more on sales track record than credit rating or collateral, more businesses can qualify for an advance than for a loan.
Business cash advances don't have a set repayment term. Since repayment is a percentage of sales, the payment will vary each day. When the sales day is slower, the payment will be lower, allowing business owners to meet obligations without jeopardizing their repayment.
Quick repayment times free up capital for other needs. Although the repayment term is not set in stone, most advances are repaid in a year or less. Once the advance is repaid, the business should be generating more profit, which will all be available for working capital or to cover living expenses.
A loan may seem like a more advantageous financial tool, but business cash advances offer many benefits to business owners looking for a fast, easy way to obtain working capital. Loans tend to be more limiting, and can cost every bit as much as an advance fee because of the long repayment period.
Quikstone Capital Solutions has been providing auto repair shop owners with merchant cash advances to stabilize and improve their companies for more than 10 years. If you are in need of a cash to cover unexpected costs, or if you’re looking to make long overdue improvements, a merchant cash advance could be right for you. With the ability to quickly qualify and get your money in a timely fashion, there is no more convenient option.
