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By Roy Rasmussen Updated on October 7, 2021

Business Credit Card Cash Advance: When to Use One

Should you use a business credit card cash advance for expenses? We weigh the advantages and disadvantages of tapping this financing resource. Learn about:

  • The amount of the business credit card advance
  • How much it costs
  • When a business cash advance can come in handy
  • Top alternatives to cash advances

What Is a Small Business Credit Card Cash Advance?

As with a cash advance through a personal credit card, a cash advance through a business credit card allows you to withdraw cash directly from your card’s balance. You typically can withdraw a cash advance as long as your credit card balance is under your limit. With some cards, you can withdraw funds up to your limit. However, some cards may restrict how much available credit you are allowed to withdraw as a cash advance. To receive cash, you typically have two options:

  • Go to an automated teller machine (ATM) and select cash advance to make a withdrawal
  • Visit a bank or credit union that accepts the type of card you use and ask the teller to process your cash advance

When using an ATM, you will need to know your card’s personal identification number (PIN) to make a cash advance. When visiting a bank or credit union, you will need a form of identification such as a driver’s license. The costs for a cash advance on your business credit card breaks down into two components: initial fee and interest.

What Does a Business Credit Card Cash Advance Cost?

The costs for a cash advance on your business credit card breaks down into two components: initial fee and interest.

1. Initial Fee

Most business credit card providers charge you an initial fee for using a cash advance. Typically, you must pay the greater of a set flat fee, such as $10, or a percentage of the amount advanced, such as 5%. For instance, if you had a card with these terms and you withdrew an advance of $1,000, a 5% charge would be $50 — which is higher than $10, so you would pay $50.

2. Interest

Along with your initial fee, you also typically must pay interest on your cash advance. This fee can be higher than the interest rate for normal purchases on your business credit card. Expect to pay an annual percentage rate (APR) in the range of 20% to 25% or more on business credit card cash advances. For instance, in the example above where you withdrew $1,000, if your card carried a 25% APR on cash advances and you took a month to repay the $1,000, you would pay interest of ($1,000) x (.25/12), or $20.83. Adding this on top of your $50 initial fee, this means you would pay a total of $70.83 to withdraw $1,000 and repay the amount within a month.

When to Consider a Credit Card Advance

What are some situations when a small business owner might use a credit card cash advance? Several typical scenarios commonly prompt entrepreneurs to consider these advances.

Need to Handle a Cash-Flow Emergency

Running short on cash to cover critical expenses can be a compelling reason to tap into an advance. For example, you may need to meet payroll, but you can’t pay workers directly with your credit card, so you need to withdraw the money first and then transfer it into an account you can use to pay them.

Lacking Cash for a Short-Term Expense

Covering short-term expenses can another reason for withdrawing cash. For example, you may need to pay a contractor who doesn’t have a merchant account to accept credit cards.

Short on Startup Funding

Paying startup costs can be a third scenario where business owners opt for a cash advance. When you’re a startup, you usually lack the capital and revenue resources of an established enterprise. A cash advance can allow you to pay for expenses that you can’t cover through other means. In all these scenarios, your ideal goal should be to repay your advance as soon as possible to minimize interest payments.

Business Credit Card Cash Advances: Pros

A business credit card advance can be an appealing financing option for a number of reasons:

  • Can be easier to get than other forms of financing, such as loans
  • Provides instant access to cash that can be spent any way you want
  • Can help you survive a cash-flow crunch emergency
  • Allows you to make purchases or pay expenses you couldn’t pay by charging it to your business credit card
  • Can be less expensive than a loan

Business Credit Card Cash Advances: Cons

On the other hand, when used for a business cash advance, credit cards can carry some drawbacks:

  • Initial fees and interest rates make cash advances a costly financing option
  • The money you spend on a cash advance isn’t available for you to spend on other credit card purchases until you repay it
  • By increasing your balance, a business card cash advance can be bad for your credit score because the total percent of your limit that you spend (credit utilization) impacts your score

These cons make business credit card advances a last-resort financing tool to be used sparingly when you genuinely need it and don’t have other options. Be sure to repay your advance as soon as possible to avoid high interest charges. Before using your business credit card for a cash advance, consider making a purchase using your card.

Top Alternatives to Cash Advances

Since business credit card cash advances are best used as a last resort, what options should you consider first? Here are a few alternatives to consider.

Use Your Credit Card Without an Advance

Relatively few business purchases truly require cash. Before using your business credit card for a cash advance, consider whether you can simply make a purchase using your card. You will avoid the initial fee for a cash advance — and you will pay interest at a lower rate.

Get a Business Credit Card With a Lower Rate

The expense associated with a credit card cash advance depends on the terms of your credit card. You may be able to spend less on a cash advance if you can obtain a card with more favorable terms. Check out your provider’s regular interest rate as well as their cash advance fees and rates when considering card options. A handful of select credit cards don’t charge higher fees for cash advances.

Apply for a Business Line of Credit

A business line of credit represents an excellent alternative to a credit card. A line of credit works similar to a credit card in several ways. You have a set limit, and you can spend money up to your limit, or alternatively, within a certain percent of your limit at a time. When you repay the money you spend, that capital becomes available to you to spend again. This is known as a revolving line of credit. However, business lines of credit differ from credit cards in some crucial ways. First and foremost, they usually offer higher limits and more favorable rates. Additionally, the money you withdraw goes directly into your bank account. From there, you can withdraw it as cash or use it to write checks. This gives you more flexibility than a credit card and allows you to make purchases you couldn’t make with a card.

Use Accounts Receivable Financing

If your business model involves extending credit to your customers and allowing them to pay at a later date (trade credit), another alternative funding option that’s available is accounts receivable (AR) financing, also known as invoice financing or invoice factoring. With AR financing, you can receive an advance on unpaid invoices that customers owe you.

  • How It Works

    When you use accounts receivable financing, you sell your invoices at a discount to a provider known as a factor. The amount the factor pays you upfront serves as a cash advance. You are then free to spend the money while the factor collects the money from your customers. After collecting the money, the factor sends the balance of what you’re owed back to you, minus a fee for the financing service. The amount you receive back is called your rebate.

As with a business credit card cash advance, invoice factoring fees can be high, depending on your provider. However, since you’re effectively offering your own invoices as collateral, you can qualify more easily for invoice financing than other forms of financing. Plus, you have an automatic, guaranteed source of repayment. With credit card advances, you need to find additional funds to repay what you borrow.

Use Business Credit Card Cash Advances Sparingly

Withdrawing a cash advance on your business credit card can give you the extra money you need when you’re in an emergency. It also can come in handy when you need short-term financing or when you’re in the startup phase. However, because a cash advance carries high fees and interest rates, this form of financing should be used as a last resort after exploring less expensive options. Fast Capital 360 offers several alternatives to credit card cash advances, including business lines of credit, accounts receivable financing and other options you’ll want to check out when exploring possible funding strategies.

Roy is a respected, published author on topics including business coaching, small business management and business automation as well as an expert business plan writer and strategist.
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