Making Sense Of Business Cash Advance

Is A Business Cash Advance Right For Your Business?

One of the biggest challenges that business owners face today is getting working capital to expand and grow their business. Traditional bank loans are very hard to qualify for, and takes months to complete, with endless amounts of paperwork. So what's all the buzz about this Business Cash Advance, often referred to as Merchant Cash Advance, all about? This is the question that many business owners are asking. It is with good reason that they are asking this question as this Business Cash Advance is becoming very popular for business owners. Just because it is becoming so popular in business circles does not mean that it is for everybody though. In order to determine if this is the right means of obtaining working capital for your business, we will discuss what it actually is, and how it can be beneficial or detrimental to your business.

What Is A Business/Merchant Cash Advance?
The first thing to make clear is that a business cash advance is not considered a loan, only in the state of California is it considered a loan. Business Cash Advances are unsecured, there is no collateral required. It is a cash advance that is calculated by looking at a business's last 3-4 months of sales, and then making somewhat of a prediction of what future sales should be, based on previous sales. An example would be if a company is averaging $50,000 per month in sales deposits, a lender would normally give an advance up to 1.5 times the average deposits, somewhere between $50,000-$75,000. A money factor is used to calculate the total payback, it is not an interest rate. When a business first starts a relationship with a lender the money factors range between 1.45-1.49 on average, and the terms will range usually between 90-120 days for repayment. After the first advance is paid back, then the lenders offer lower money factors and longer terms. Repayment is debited out of the business checking account on a daily basis, Monday through Friday, there are a few lenders who offer weekly payments that are taken out usually every Wednesday. There are discounts offered for early pay-offs in most cases.

Examples Of Business Cash Advance Structure:
(This is what a typical first time advance will look like)
Cash Advance Amount:   $50,000
Money Factor:   1.45
Term Length:  100 Days
Total Payback ($50,000 x 1.45): $72,500
Daily Payment Amount: $725
(This is what a second advance may look like)
Cash Advance Amount: $50,000
Money Factor: 1.39
Term Length: 180 Days
Total Payback Amount ($50,000 x 1.39):  $69,500
Daily Payment Amount:  $386

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Does A Business Cash Advance Make Sense For Me?

There is a fairly simple method that you can use to determine if a Business Cash Advance is going to be a benefit, or a detriment to your company. As you can see by the examples shown above, there is a daily payment that is withdrawn from your account, and there is a total payback amount. The general rule of thumb is if your daily cash flow can support the daily payment, and you can use the cash advance to expand and grow your company, and make a substantial profit from it, then it will make sense. An example of this might be that you add a piece of equipment and personnel to operate it, which leads to additional profit for your company. The immediate profits may go towards paying the advance back, but they are short term, and will pay off quickly, leaving you then with an additional piece of equipment that is paid for and making you additional profit. Another example may be that you are purchasing a property that you can fix up and sell in 90-120 days and make a substantial profit. If the advance costs you $20,000 above and beyond the principal amount you borrowed, but the profit on the property when you sell it is $50,000, then it would make sense to get a business cash advance.
There is also a general rule of thumb when not to take a business cash advance. If your daily cash flow cannot support the daily payment, and the advance in no way expands or adds any growth to your business, it then is just another expense in most cases, and not a benefit to your company. An example of this would be if business is slow and you're falling behind on bills. Your cash flow is already on the down side, and the only reason for getting the advance is some relief from creditors, all this will do is completely drain your cash flow down to nothing and make things worse. In this example, you are adding nothing of value to your company that is going to produce a profit, and you cannot afford the daily payments to begin with. Taking a business cash advance in this case could run you out of business quickly.

Why Are So Many Business Owners Utilizing Business Cash Advances?

• Credit: Business Cash Advances do not solely rely on credit scores, they are based mostly on revenue. So business owners with 450 and above scores qualify for business cash advances.
• Paperwork:  Business Cash Advances require minimal documents, usually an application, 3 months business bank statements, photo ID, voided check, and proof of ownership of the business.
• Time:  A Business Cash Advance usually takes 3-5 days to process and put funds into a business owners bank account. 

If you have decided that a Business Cash Advance is right for your company, we would like to talk to you. Small Business Capital US is dedicated to ensuring that our clients have the education to make good decisions for their business. We will spend time with you, sharing information in a transparent and professional manner. There will never be any surprises or upfront fees. It is our mission to help keep businesses in business, by providing access to working capital when it makes sense for a business owner, and yes, we will also let you know if it doesn't make sense. 
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