What is a Business Cash Advance
A business cash advance is a business loan where the lender provides a specific amount of upfront cash to a business owner. The business owner agrees to pay back the advance with a portion of each sale as the sale is generated.
What Does it Cost
Each lender has different terms and structures when providing a business cash advance but there are several common charges associated with this financial product. The most important note about the cost is that there is a zero percent interest rate. There is an initial fee that is added to the principal and this fee never changes. An example might be if a business owner borrows $10,000 he or she might agree to pay back $13,000. As each sale is generated the agreed upon percentage will be deducted until the $13,000 is paid back. This might take two months or twelve months, it simply depends on how many sales are generated each month. The more sales that occur the quicker the business cash advance is paid back.
Some lenders do charge other fees such as closing costs, application fees, filing and legal fees, and many other in-house line items. However, it is important to point out that many lenders do not charge any fees outside of the cash advance and the lender fee, so in the case above the entire cost to the business owner would be $13,000.
Who is Eligible for a Business Cash Advance
Almost any business owner who has an operating business is eligible to apply. Some lenders require that a business has at least 6 months in operation and has at least $2,500 of an average monthly revenue. Again, each lender is different but this is one of the common requirements of many business cash advance companies.
How Do You Pay the Cash Back
The agreed upon percentage of each sale, usually 5-15%, is deducted daily from your credit card processing account. The lender establishes a contract with the processing company to deduct the set percentage of each sale and it is all done electronically. The business owner only has to check on the balance occasionally to see how much has been paid off. Once the business cash advance and all associated fees are paid back the entire amount of each sale now goes to the business.
How to Apply for a Business Cash Advance
Most business cash advance companies are located online. A quick search of the term will yield a long list of companies. A business owner can go to any one of these sites and fill out the basic form located on one of the application pages. It is usually a one minute form and shortly after the applicant will get a phone call from the lender. Once the initial details are worked out, such as the amount of the approval and the fees, a contract is then sent to the borrower. Once the contracted is signed and submitted, the lender can wire the money to the business bank account in a day or two. Typically lenders verify all the business owners information before wiring the funds so it can take even longer if there are any inconsistencies.
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