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Everything you need to know about a business cash advance loan

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Many small businesses are struggling these days and are seeking loans to help them stay afloat during hard times. There are several types of loans that your small business may qualify for, and if you need funds quickly, a business cash advance loan may be the best option for you. If you are considering a loan, this guide will give you information about how to get one and the best ways to use it.

What is a business cash advance loan?

A business cash advance loan is sometimes referred to as a merchant cash advance. It is a set amount of money given in one lump sum to a business in exchange for an agreed-upon percentage of the business’s future sales until the loan is paid off.

Business cash advance loans are ideal for small businesses in need of fast cash. Just like in the case of consumer payday loans where the loan is funded the same or next business day, it usually takes just a day or two to see the funds in your bank account when you apply for a business cash advance.

The basics of business cash advances

The information below summarizes everything you need to know about business cash advance loans:

  • Loan Amount: $2,000 to $1,000,000
  • Loan Term: 3 months to 3 years
  • Holdback Amount: 10% to 20% of daily revenue
  • Payment Frequency: Weekly or monthly
  • Interest Rate: 10% to 200% APR
  • Turnaround Time: 1 to 3 business days after approval

How to get a business cash advance loan

To get a business or merchant cash advance, you will usually need to:

  • Provide bank statements or other documents that show the business’s revenue
  • Provide documentation that shows how long the business has been established
  • Complete an application from the loan lender
  • Agree to a credit check

Each loan underwriter will have specific requirements for their business cash advance loans. Some require you to have a certain amount of monthly business revenue while others require that your business be at least six months old.

Because this is a one-time loan, you will want to determine how much money you will need as accurately as possible. Ideally, you will not borrow too much or too little.

The amount of money you can be approved for depends on several factors such as:

  • The business’s projected daily income
  • The business’s age
  • Your credit history

How to use a business cash advance loan

One of the biggest benefits of business cash advance loans is that you can use the money in whatever way you want. There are no restrictions. Business cash advances are great options for startup businesses. Other types of business loan lenders may be reluctant to approve loans for new businesses, so startups will often have more success securing a business cash advance.

If your business has a seasonal lull in sales, a loan may be a good way to keep your business up and running until sales increase again. For established businesses with poor credit history, a business cash advance may also be a better option than other types of loans. You may not qualify for a business loan from a bank or an SBA loan if you have a bad credit score. And if you do qualify, you may have to pay a higher interest rate.

While business cash advance loan lenders check your credit, it’s not a primary factor in the loan approval decision. The loan also will not appear on your credit report, so you should not use a business cash advance loan to help build your company’s credit.

Paying back your loan

Instead of making monthly payments as you would with a consumer installment loan, with a cash advance, you will give a predetermined percentage of your company’s daily sales as repayment. This percentage is known as the holdback amount. It’s usually 10% to 20% of daily revenue. Therefore, the exact payment amounts and loan term will vary based on sales.

Payments are usually automatically deducted from your business bank account, so you don’t have to remember to make the payments on time. The frequency of payments will be determined with the loan lender. Typically, payments are made weekly or monthly.

Sometimes with a merchant cash advance, the percentage that you will repay is based on the company’s credit card sales rather than overall revenue.

This is an ideal payback method for businesses whose sales and expenses fluctuate from month to month. Inconsistent money flow in and out can make it difficult to pay back a traditional loan with a fixed monthly payment amount.

Summary

A business cash advance is a one-time business loan that is usually in your bank account within one business day of approval and can be used in any way you need. Business cash advance loans are paid back based on a percentage of daily revenue. These loans are ideal for new businesses, seasonal businesses, and business owners with low credit.

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