A business cash advance is a loan based on credit card factoring, where the lender provides a lump sum in exchange for a percentage of daily credit and debit card sales. It’s an alternative to traditional business loans and is easier to qualify for, but has higher fees and interest rates.
A business cash advance is an alternative to a traditional business loan obtained from a bank or other financial institution. This type of loan is based on credit card factoring. The lender agrees to provide the merchant with a lump sum of money in exchange for a percentage of daily credit and debit card sales. Automatic deductions are taken from the merchant’s account until the refund amount has been reached. These percentages are predetermined at the time of approval and often include high interest rates and fees.
Many financial institutions place strict requirements on business loans. Small businesses or startups may find it difficult to obtain a business loan at a bank and opt to apply for a business cash advance instead. Financial lenders that provide cash advances to merchants do not require the business to have a credit card history and do not check credit scores. Many new business owners who haven’t had time to build up a credit history or establish a credit score can request a business cash advance for start-up costs. Small businesses can also choose this type of cash advance to promote growth or even to help support a business if sales have declined.
The approval rate for this type of cash advance is high as businesses are not required to have an established credit history or good credit rating. Business owners applying for a merchant cash advance loan must provide proof that the business accepts credit and debit card sales, as well as a statement of those sales. A business cash advance is generally much easier to qualify for than a standard business loan. Turnaround times also tend to be much faster since there is very little paperwork involved. Unlike business loans, which typically place strict restrictions on the loan amount, business owners are free to use a business cash advance as they see fit.
Business cash advance fees and rates are generally much higher than most standard loans, as commercial cash advances are considered high risk. No guarantees are needed as the refund is based on future sales. The transaction is recorded as a sale rather than a loan, so the credit rating of the business is not affected in any way. Business owners applying for a business cash advance should carefully read the terms and conditions of the agreement before finalizing the transaction.
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