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The pros and cons of a business cash advance

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The pros and cons of a business cash advance

If your business takes a high volume of payments through a card reading device, then you could be eligible for a business cash advance. Below, we explore the pros and cons. 

What is a business cash advance?

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A business cash advance is similar to a business loan – it’s used to boost cashflow and unlock extra finance as you grow your business. With a business cash advance, you’ll take out a loan based on your monthly credit and debit card sales. From there, you’ll make flexible monthly repayments based on these sales. Essentially, you’ll pay the lender back – little by little – through the money you’re bringing in from customer credit and debit card transactions.  

The advantages

The main benefit is that the repayments are flexible. When you take out a business loan, you’ll usually have set repayments each month – these can be difficult to meet if you’re running a seasonal business with volatile revenue each month. However, with a business cash advance, your repayment rates will be based on your card income that month, making it a more viable loan.

You can also benefit from revolving credit with a business cash advance. This means that once you’ve repaid a certain amount of your loan, you could be eligible to take on extra capital to continue to drive your business forward.

On top of this, business cash advances don’t have fixed terms. Instead, repayment is purely based on your card sales. This means that you won’t be locked into unwieldy, difficult contracts over a period of years.

Finally, there are also high acceptance rates on business cash advances due to lender confidence. This means that you’ll be likely to secure a loan, even if other types of loans aren’t achievable. 

The disadvantages

There are some disadvantages though. Lenders usually demand a flat fee up front to compensate for the flexible monthly payments, meaning you could end up paying significantly more money back than your initial borrowed sum. What’s more, a business cash advance isn’t a long-term solution: it’s best deployed for short-term growth. If you’re looking for financing in the long term, you may need to look elsewhere.

A business cash advance can give your business a helpful financial injection. And by weighing up the pros and cons above, you should be prepared to make the right decision for your business.