An independent business may need cash for a variety of things. Most businesses need to stock and reorder inventory consistently. Payroll management of wages and salaries paid to employees must be made on time and rent paid to a landlord for use of a space can’t be late.
But there are many other drains on finances. Promoting offerings to potential customers carries expenses. Marketing may include advertising, public relations, promotional events, and other monetary efforts. Taxes at different levels of government need to be paid monthly or quarterly. As such, access to cash is critical.
“The costs with running the day-to-day operations of a business – such as utilities, insurance, and staff salaries. Investments – can add up,” said Elie Y. Katz, President and CEO of National Retail Solutions (NRS). “Any action taken to increase the size or scope of a business, such as opening a new location or hiring additional employees can require liquid cash assets. Cash funding can be especially helpful and critical for growth when a business doesn’t have needed capital readily available. Many businesses are challenged with saving up for a rainy day, and access to cash funding when needed can make or break a business’ progress.”
A cash advance is simple to obtain and beneficial for business growth. A business cash advance is a type of short-term financing that provides business owners with a lump sum of cash in exchange for a portion of their future sales. This type of funding is ideal for businesses that need quick access to capital, such as those that want or need to upgrade and renovate, or those that are struggling with cash flow for daily operations.
“The main benefit of a business cash advance is that it is typically much faster and easier to qualify for than a traditional loan. Businesses that don’t meet the requirements of a traditional bank loan may still be able to get approved for a business cash advance,” Katz said. “Additionally, business cash advance loans don’t require collateral, so businesses don’t have to worry about putting up personal or business assets as security.”
Another advantage of business cash advances is that they are often easier to manage and repay than a traditional loan. Instead of having to make regular payments over a fixed period of time, the business will only make payments when their customers pay for goods or services. This allows businesses to manage their cash flow more effectively without the weight of conventional bank loan debt. Finally, business cash advances can be beneficial for businesses that don’t have access to traditional sources of financing, such as those with bad credit or a short operating history.
“Businesses with poor credit may be able to get approved for a business cash advance, since lenders are more focused on the business’s cash flow than its credit rating,” Katz said. “Overall, a business cash advance is a great way for businesses to get the funding they need quickly and easily. It can be a great option for businesses that need quick access to capital, but don’t have access to traditional lending sources.”
Cash funding with an advance often comes with flexible repayment terms, which can be important for businesses that need to manage their cash flow. Cash funding can allow businesses to save on interest costs associated with credit card purchases. For this reason, a business owner would fare better with obtaining a cash advance over using lines of credit and/or paying with credit cards.
Cash advances are similar to – and at same time different from – bank loans. A cash advance is typically used to cover unexpected expenses or to bridge a temporary gap in cash flow. Unlike a conventional bank loan, a cash advance does not require lengthy documentation or collateral. It is often much easier to obtain. Additionally, cash advances are typically paid back in a lump sum, rather than in installments like a traditional bank loan.
“Cash advances and bank loans both require researching lenders and comparing interest rates and loan terms. It’s important, whether applying for a bank loan or a cash advance, to look for lenders who are experienced in lending to businesses in your specific industry,” Katz said. “You’ll be asked to provide financial records and documents with your loan application. There will likely be a waiting period for approval and receipt of your funds.”
The cash advance application and review process may be much faster than that of a bank loan, which can take a few weeks for the funds to be accessible. With a cash advance, money can be available as quickly as within 24-48 hours.
There are defined qualifications for a bank loan v. cash advance. The documentation needed to get a bank loan will vary depending on the type of loan and the individual’s situation. Generally, it is expected that borrowers provide evidence of reliable income, proof of identity, and proof of residence. A loan application form and a credit report may be required. Other documents that may be requested include bank statements, tax returns, and proof of insurance. Credit score typically has a greater impact on obtaining a bank loan than it does on obtaining a cash advance.
“Banks are more likely to require higher credit scores for a loan than a cash advance lender. Cash advance lenders may not even consider a borrower’s credit score before approving a loan, while banks typically look at credit scores as one of the primary factors when considering loan applicants,” Katz said.
The exact documentation needed to get a cash advance may vary depending on the lender and the type of cash advance being requested. Generally, though, most lenders will require proof of identity, income, and a bank account. Some cash advance lenders may also require other documents, such as a recent pay stub, recent bank statements, or a valid driver’s license. Cash advance lenders don’t typically condition approval on the client’s credit history.
Use cash advance funds for whatever you choose. The bank may require that the loan be used for a specific purpose as indicated on your application; business expansion, purchasing equipment, or other investments. It’s important to discuss your plans with the bank to ensure that the loan can be used for the purposes you have in mind. There are restrictions and limitations on use of bank loan funds.
“If you want flexibility and the ability to use your money as you choose, a cash advance may serve you better. You can use your business cash advance for whatever you want – but it is important to note that cash advances are typically short-term, high-interest loans,” Katz said. “As such, it’s best to utilize cash advances for short-term needs only, and not for long-term investments or other activities. You’ll want to make sure to pay back the advance on schedule to avoid incurring high interest and other associated fees.”