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Cash Advance…Is it Right for You?

You’ve started your business. Congratulations! You have high hopes and dreams, a 5-year plan. You need additional capital to make things go.  Because you’re a relatively new business, you’ve not yet acquired much credit and your choices aren’t vast. Cash advance style loans cater to those in your position, but is it a smart move? There are some questions you have to ask yourself.  First is: Do you have a need? Will the money you’re looking to borrow move your business forward and will you make money from it? While this style loan can cost a bit more than a traditional bank loan, they’re typically faster to release funds, don’t require as much time and paperwork as your local bank, and are a bit more forgiving of less than great (or under developed) credit.   So if these funds will make you money, it’s not a bad move.

There are different programs available in the world of cash advance style loans; short term (3-4 months) to longer/traditional length loans (1-3 years). The rates vary as well; anywhere from 7.99%-40%*. There are some things that people have a difficult time wrapping their heads around when it comes to this type of loan.

-Daily payments: Many programs require a daily payment (typically Monday-Friday) and this can be an adjustment to what you are used to. However, it can be a good thing. Whether you have a daily, weekly or monthly payment, you have to allot for the payments to come out and a daily payment takes away that big sting once a month and forces you to budget your money, which is a plus.

-Shorter terms (on some programs): Who doesn’t want the longest term possible?! But a shorter term doesn’t have to be a negative aspect of a loan. If your turn around time, from when you get the loan to when you make money from it, is short, then why drag out the payoff anyway? Not only will it get rid of the loan, but it also has quickly improved your credit score.

-Those rates! As I mentioned, the rates can be higher than those of a traditional bank loan. Think of it in this scenario:

You need milk, eggs, bread and a few other items at the store. You have 2 choices;

  1. The supermarket: it’ll take you longer to find your items and your savings card but you’ll spend less money (unless you’re like most of us and pick up items you don’t need in the process).
  2. The convenience store: you’ll run in, grab what you need quickly but spend a bit more for the convenience and speed so you can get back to your busy life.

Bottom line is this: if you know you’re going to use the money to further your business and not just let it sit, it’s worth the venture. Be sure to discuss these needs with one of our business advisors to see if it is right for you.  Information doesn’t cost anything and knowledge is power.

*The rates and terms quoted are approximation.

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