As your business requires instant cash, are you ready to explore innovative financing options? You may be thinking of taking out a cash advance, but you’re not sure if it is a good idea.
To help you make an informed decision for your small business, find you everything you need to know about a cash advance:
What Is a Cash Advance?
Also known as a merchant cash advance, this is an excellent form of alternative business financing. A cash advance isn’t a typical business loan but a lumpsum advance that your financier extends to you based on future credit card sales. Once you apply for the loan, your cash advance provider evaluates your application based on a set of pre-determined criteria and approves it in as little as 24 hours.
A cash advance is highly suitable for asset-light businesses that see a high volume of credit/debit card-based sales. Travel, hospitality, and retail sectors are classic examples. So, if you receive the majority of your revenue through credit/debit card payments, a cash advance might be the perfect option to solve cash flow issues.
While the underlying concept remains the same, the product could differ across lenders. At Zinch, we give you a cash advance by purchasing a fixed dollar amount of your business’s future credit/debit card sales at a discount. Your repayments are calculated as a percentage of your credit/debit card sales.
How Does It Work?
The process of obtaining a cash advance is reasonably quick. The standard documentation would include identity proof and your bank and credit card statements. Once you receive approval for your application, the funds will be credited to your account within just 2-3 working days.
Notably, instead of credit evaluation, cash advance providers look at the money flowing into your business through your card terminals. As a common practice, the repayment structure is associated with a percentage of the credit/debit card sales.
To help you decide whether a cash advance is a suitable option for you, let’s understand who should go for a cash advance.
Who Should Get One?
A cash advance is a quick business financing option that has many unique features. Let’s take a look at who can be the ideal candidate for a cash advance :
For those who need quick cash: The biggest advantage of a cash advance is the speed at which you can receive the funds. It can be as little as 2-3 days (which is what you get with Zinch). The documentation and qualification process is fairly hassle-free. The focus is more on your sales history than your credit history, which is ideal for businesses with high seasonal sales.
For those who cannot pledge collateral: A cash advance is an unsecured form of financing. You do not need to pledge collateral to your cash advance. In most cases, you don’t need to provide a personal guarantee, either. For businesses with limited assets, this is a major bonus.
For those who need flexible repayment terms: For repayment agreements based on sales percentage, there is no burden of paying back when sales are low. This is a major perk for businesses with seasonal sales as the cash flow remains intact during lean months.
Note: The flexible repayment structure of the product can result in a higher borrowing cost. The annual percentage rate or the APR also depends on how quickly you repay the loan. Hence, if your sales are weak, your payments would be spread over a large period and the APR could decline. In the same way, higher sales could translate to a higher APR.
So, Should You Go for a Cash Advance?
A cash advance can be your go-to financing option if you need quick cash to capitalize on a sudden business opportunity or meet unexpected expenses. Not to mention the hassle-free and flexible payment terms.
However, the cost of financing a cash advance is relatively steep compared to other options (though not without good reason). The premium cost buys you a less-rigid qualifying criterion and the lightning speed at which the funds are made available for you.
A thorough cost-benefit analysis will help you to determine if a cash advance is feasible for your business. It is also imperative that you understand the terms of the contract before signing it.
A cash advance is most suitable for businesses with an average credit profile and fluctuating sales. However, businesses with a good credit profile, a steady stream of sales, and a strong asset base can explore a conventional route like a small business loan.
Considering a cash advance? Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
