Business Cash Advance – How it works

Small businesses need funding as much as big corporations does but the business loan models that work for big corporations usually are not applicable to the needs of most small businesses.  There was a time when financial institutions like banks and credit unions process most business loans universally. A large portion of the existing small business and startups’ funding needs are not met, others are overburdened by the monthly payments and tight policies that they have no choice but to close down. 

About a decade ago, the business cash advance loan structure was introduced and while it was met by much skepticism by economists and financial analysts.  Small business owners however, found that it was just the right kind of small business funding that they require.  The business cash advance is similar to a payday loan but the process is tailored specifically for small businesses.   For one, the application and evaluation process takes days and not months and the minimum amount loanable is manageable enough for any small business to handle

What is usually required?

While the business cash advance facility is design to make access to funds easier and faster, there are a few qualifications in order to make the whole process work.

·         The business should have an EFTPOS (electronic funds transfer at point of sale) to process payments.  Should be able to accept major credit cards or preferred cards by the financing company. This is needed because the payment is made on a daily basis through the debit/credit card processors.

·         A minimum monthly credit card or debit transactions. This rate varies depending on which business cash advance provider you approach but it is usually somewhere between $5,000.00 to $10,000.00 credit card/debit card sales per month. 

·         The business should be operating for a minimum of 12 months. This allows the provider to assess cash flow and allowable cash advance amount.

·         The usual businesses that may take advantage of this type of funding source are those who transact daily such as restaurants, retail stores or gift/novelty shops, bakeries, salons etc.

How it works

Approval is usually within a period of 5 to 14 days, and the business owner is given a lump sum which may reach up to 100% of the total monthly sales.  There is an agreed percentage which is automatically deducted from the daily sales and payments are automatically debited to the business cash advance provider’s account.

There is no interest rate, no fixed payment term or payment schedule.  The length of the term will depend on your sales.  The higher the sales, the faster the “loan” gets paid.