As a small business owner, you may find yourself in a situation where you need a quick infusion of cash to cover expenses or take advantage of a business opportunity. One option to consider is a cash advance business loan, which can provide you with the funds you need in a short amount of time. However, there are several factors you should consider before taking out a cash advance loan. In this blog post, we’ll cover the top 10 things to think about when considering a cash advance loan for your business. By carefully weighing these factors, you can make an informed decision that is right for your business.
- Interest rate: How much you’ll be paying in interest on the loan.
- The interest rates on cash advance business loans can vary significantly depending on the lender, the borrower’s creditworthiness, and the specific terms of the loan. In general, cash advance loans tend to have higher interest rates than other types of business loans, such as term loans or lines of credit. This is because cash advance loans are typically shorter-term and carry more risk for the lender.
- Interest rates on cash advance loans can range from around 10% to over 100%. However, it’s important to note that these rates are usually expressed as a factor rate, rather than an annual percentage rate (APR). For example, a lender may offer a factor rate of 1.2, which means that the borrower will need to pay back 1.2 times the amount borrowed. In this case, the effective interest rate would be 20% (1.2 – 1 = .2, or 20%).
- It’s also worth noting that some cash advance loans may have other fees in addition to interest, such as origination fees or maintenance fees. These fees can significantly increase the overall cost of the loan, so it’s important to carefully review the terms of any loan before accepting it.
- Repayment terms: How long you have to pay back the loan and what the payment schedule will be.
- Repayment terms for cash advance loans can vary depending on the lender and the specific terms of the loan. In general, cash advance loans are shorter-term loans, with repayment periods ranging from a few weeks to a few months. Some lenders may offer flexible repayment terms, allowing you to choose a repayment schedule that works best for your business.
- Traditional cash advance loans are repaid through a percentage of your daily or weekly credit card sales. For example, a lender may agree to advance you a certain amount of money, and then automatically deduct a percentage of your daily credit card sales until the loan is repaid. This can be a convenient repayment option for businesses that have a steady stream of credit card sales. Nowadays, small business cash advances typically operate on a “term loan” structure which ranges between 2 – 24 months.
- It’s important to carefully review the repayment terms of any cash advance loan before accepting it. Make sure you understand how much you’ll be expected to pay back and how often you’ll be required to make payments. It’s also a good idea to consider whether the repayment schedule will be manageable for your business. If you’re not comfortable with the repayment terms, it may be worth looking for a loan with more favorable terms
- Fees: Are there any upfront or ongoing fees associated with the loan?
- Credit score requirements: What is the minimum credit score required to qualify for the loan?
- lender and the specific terms of the loan. In general, small business cash advance lenders may be more lenient with credit score requirements than traditional banks, as they often focus on the creditworthiness of the business rather than the personal credit score of the borrower. However, it’s still important to have a good credit score in order to qualify for a cash advance loan, as it can affect the terms of the loan and the interest rate you’ll be offered.
- Some lenders may have minimum credit score requirements for cash advance loans, while others may not have a specific requirement but may still consider your credit score when evaluating your loan application. If you have a lower credit score, you may still be able to qualify for a cash advance loan, but you may be offered less favorable terms, such as a higher interest rate. It’s always a good idea to check with the lender directly to find out their credit score requirements for cash advance loans.
- Collateral: Is collateral required to secure the loan?
- Most cash advance loans are not collateralized, meaning that the borrower is not required to pledge any assets as security for the loan. Instead, the lender typically requires a personal guarantee from the borrower. A personal guarantee is a promise from the borrower to personally repay the loan if the business is unable to do so. This means that if the business defaults on the loan, the lender can go after the borrower’s personal assets (such as a home or car) in order to recover the funds.
- It’s important to carefully consider the terms of a personal guarantee before accepting a cash advance loan, as it can have significant implications for your personal finances if the business is unable to repay the loan. If you are not comfortable with the terms of a personal guarantee, it may be worth looking for a loan that does not require one or exploring alternative financing options.
- Prepayment penalties: Are there any penalties for paying off the loan early?
- Prepayment options for a cash advance loan refer to the ability to pay off the loan before the end of the agreed-upon repayment period. Some cash advance lenders may allow you to prepay the loan in full or in part, while others may not have any provisions for prepayment.
- If you are considering prepaying a cash advance loan, it’s important to check with the lender to see if they allow it and if there are any fees or penalties associated with prepaying. Some lenders may charge a prepayment penalty, which is a fee for paying off the loan early. This fee is typically a percentage of the remaining balance on the loan and is meant to compensate the lender for any lost interest income.
- It’s always a good idea to carefully review the terms of a cash advance loan before accepting it, including any provisions for prepayment. This can help you understand your options and make an informed decision about the loan.
- Time to funding: How long will it take to get the funds from the loan?
- The time it takes to get funds from a cash advance lender can vary depending on the lender and the specific terms of the loan. Some lenders may be able to provide the funds within a few days, while others may take longer. In general, cash advance loans tend to have a faster funding process than other types of business loans, such as term loans or lines of credit, as they often have fewer requirements and a simpler application process.
- It’s always a good idea to ask the lender about their funding timeline when considering a cash advance loan. Some lenders may be able to provide an estimated timeline based on their past experience, while others may not be able to provide a specific estimate. It’s also a good idea to consider whether the funding timeline is sufficient for your needs. If you need the funds more quickly than the lender can provide them, it may be worth looking for a lender with a faster funding process or exploring alternative financing options.
- Flexibility: Is the lender willing to work with you to customize the loan terms to meet your needs?
- Small business cash advance companies often offer some level of flexibility when it comes to loan terms. This can be particularly appealing to small business owners who may have unique financing needs or who may be seeking a loan with more customized terms.
- Some cash advance companies may allow borrowers to choose their repayment schedule or modify the terms of the loan to meet their specific needs. This can be particularly useful for businesses that have irregular cash flow or that may need to adjust their repayment schedule due to changing circumstances.
- It’s always a good idea to ask about flexibility when considering a cash advance loan. While every lender is different, many cash advance companies are willing to work with borrowers to find a loan solution that meets their needs.
- Customer service: How responsive and helpful is the lender’s customer service team?
- Reputation: What is the lender’s reputation in the industry? Do they have a good track record of working with small businesses?
- It’s difficult to accurately identify the top small business lenders in the cash advance space, as the market is constantly changing and there are many lenders to choose from. Here are five lenders that you may want to consider when looking for a cash advance loan:
- OnDeck: OnDeck is a leading online lender that offers cash advance loans to small businesses. The lender has a simple application process and can provide funds in as little as one business day.
- Kabbage: Kabbage is another online lender that offers cash advance loans to small businesses. The lender has a fast application process and can provide funds in as little as one business day.
- Square Capital: Square Capital is a cash advance lender that is affiliated with the popular point-of-sale system, Square. The lender offers flexible repayment terms and can provide funds in as little as one business day.
- Fundbox: Fundbox is an online lender that offers cash advance loans to small businesses. The lender has a simple application process and can provide funds in as little as one business day.
- Rapid Advance: Rapid Advance is a lender that specializes in cash advance loans for small businesses. The lender has a simple application process and can provide funds in as little as one business day.
- It’s always a good idea to shop around and compare multiple lenders before choosing a cash advance loan. This can help you find the lender that best meets the needs of your business.
Why should you choose us as your small business loan broker?
A broker can be a valuable resource for small business owners looking to secure a cash advance. At Nittany Finance we help help by:
- Providing information: A broker can provide information about different cash advance products and lenders, including the terms and fees associated with each option.
- Assessing needs: A broker can work with the small business owner to assess their financing needs and help them determine the type of cash advance that is best suited for their business.
- Identifying lenders: A broker can help the small business owner find lenders that are willing to work with them and that offer cash advance products that meet their needs.
- Assisting with the application process: A broker can assist the small business owner with the cash advance application process, including gathering necessary documents and completing the application.
- Negotiating terms: A broker can work with the small business owner to negotiate the terms of their cash advance, including the interest rate and repayment schedule, to ensure they get the best deal possible.
By working with a broker, small business owners can benefit from the broker’s expertise and knowledge of the loan market, which can make it easier to secure the financing they need.