A business cash advance — which is sometimes referred to as a merchant cash advance — provides credit impaired businesses with a lump sum of working capital, which is then paid back over time based on future payment card (credit and debit) sales. While there are various options, the most common is an automatic repayment at the end of each business day.
One of the most innovative features of business cash advance, is that the repayment amount is dynamic rather than fixed. As such, businesses that have an excellent day at the register (physical or virtual) will pay slightly more towards their advance, and therefore be closer to full repayment. Alternatively, when sales are sluggish, businesses have more cash-on-hand to invest in revenue and profit-generating strategies.
If you are evaluating various financing options and are considering a business cash advance, then here are 3 best practices if you ultimately head in that direction:
Have a ready-to-implement spending plan.
With bank account interest lagging well behind the rate of inflation, you do not want the bulk of your business cash advance sitting in your bank or credit union account for months. Ensure that you have a robust and realistic plan for how you’ll use the funds sooner rather than later.
Don’t borrow more than you need.
If you are not sure how much you’ll need, you’re better off combining a business cash advance with a business line of credit. The former can be used for your known spending requirements (e.g. purchase equipment, buy inventory, hire staff, etc.), while the latter can be available to you if and when you need additional funds. Alternatively, you may be able to rapidly apply for a second merchant cash advance while your first is still active.
Don’t use a business cash advance to build your credit.
A business cash advance is not a loan. Rather, it is an advance on future payment card sales. As such, it will not show up on your credit report (i.e. credit bureaus will not even know that the advance exists), and therefore cannot improve your score. However, you can certainly use your business cash advance to strengthen your business overall, which would put you in a position to successfully apply for a credit score-building loan or line of credit.
At National Business Capital, we provide unsecured (i.e. no collateral) business cash advances to clients nationwide. Impaired or bad credit is not a deal-breaker, and 2-3 months of business history is sufficient. To learn more, contact our team today. We’re available 24/7/365, and our approval rates are around 90% — compared to less than 20% at big banks.