For plenty of small businesses, a business cash advance is the best means of raising capital. In fact, business cash advance is fast becoming one of the most popular financing methods for small businesses, many of which find it difficult to obtain loans from more conventional sources such as banks and other financial institutions. However, it is important to distinguish once and for all that a business cash advance is not a loan. It is just what it says it is: a cash advance against future profits.
Typically, this is how a business cash advance works: the cash advance provider buys a fixed number of Visa and Master card receipts from small business owners and provide them with a cash advance against those receipts. Once again, this amount is not a loan but an advance to be paid back through the merchant account. Therefore, a borrower (for want of a better term) need not repay the amount personally.
Stephen Bernard, a Miami-based consultant who specializes in small businesses, says one of the reasons small business owners find it difficult to obtain loans from formal lenders is because the latter consider small businesses to be a high-risk sector given the uncertainty over returns and profits, which means they find it difficult to repay a loan. “In the past, small entrepreneurs would turn to dubious sources for a loan, but that has changed with the system of business cash advance, says Stephen. “And the fact that so much of the transactions happen online is an added advantage.”
Today, there are plenty of lenders specializing in business cash advances, where the basic principle is to allow a businessman to draw upon future profits to finance his present requirements. Melanie Graham, who set up a confectionery in Philadelphia some 18 months ago with plans to launch a chain across eastern USA, went online to look for a likely cash advance provider and chose FastUpFront.com because “their approval rate for unsecured cash advances was over 95%”, says her business had virtually no hope of taking off had it not been for the business cash advance.
Companies like FastUpFront.com typically require no collateral or personal guarantee in order to make a business cash advance; which means the amount is unsecured. Melanie says she did not pay any application fee, there was no fixed repayment schedule, and payback was automated. “Neither did I have to submit financials or tax returns, nor was bad credit a problem,” she adds. “All that I had to prove to FastUpFront.com was that my business was registered in the United States, that my business accepted credit cards, and that it processed $1000 or more in credit card sales.”
Also an advantage is that unlike a business loan, which requires a great deal of paperwork to be gone through before the money changes hands, a cash advance can be ready in a matter of hours. As Melanie says, “FastUpFront.com had my application processed ready in 24 hours. And I received my business cash advance within the week.”
As a small business owner who has had to take recourse to loans from banks, Ronald Freeman, a 37-year-old dealer in ceramic ware based in Baton Rouge, Louisiana, says he nearly lost his house when he failed to meet two repayment deadlines. “I never had a history of bad credit, but I ruined my record when I was forced to default on the deadline,” he says. “My house, which I had put up as collateral, was on the brink of being attached, and there was a very real danger that my family (wife and three daughters) would be homeless.”
Fortunately, Ronald repaid his loan without having to go through the trauma of being labeled a defaulter when a friend stepped in with a timely loan, but as he says, “Whether it is from a bank or from a personal source, a loan is a loan, and I never again want to go through the experience of feeling obliged to someone for financial assistance.”
For such business owners, it is small wonder that business cash advance is becoming the financing option. Says Melanie, “For a bank or non-banking financial institution, a small business is always a high-risk area, because there is not enough stability, at least in the initial stages. And for the small entrepreneur, too, there may well come a time when he or she is unable to meet repayment deadlines because of a fall in sales figures.”
It is here that business cash advance scores over traditional loans, and at the rate at which its popularity is soaring, traditional lending institutions may have to fight off increasingly stiff competition from the Johnny come lately.