What Is a Cash Advance and Why Do Businesses Need One?

If you’re wondering what a cash advance is, here’s what you need to know. Business cash advances don’t require a credit rating, but the lender does require access to a business’s account. This makes these loans lower risk. You pay them back with payments on your customer credit cards, and the total amount you pay back doesn’t change. Here are some common reasons businesses need cash advances:

Short on Cash

If you’re short on cash and have no other options, you might consider getting a cash advance. However, the cost of a cash advance may outweigh the benefits of this type of loan. Using your credit card to get a cash advance may be an uncomfortable situation, and you should consider the alternative options first. Even though it may be cheaper to borrow from friends and family or online loan services like USInstallmentLoans, the cost of borrowing can quickly add up.

Most cash advance companies charge a fee on the amount you borrow, which is usually 5% of the amount. The bank or ATM that provides the cash advance also charges a fee, but this is separate from the fee you pay to the credit card company. When you make regular purchases with your credit card, you receive a grace period before the balance is due. When you get a cash advance, however, there is no grace period. Interest begins accruing from the day you request the money.

A Convenient and Fast Source of Money

Cash advances for business owners are a convenient and fast source of money. Unlike traditional loans, they don’t require a credit check or a long business history. The money is usually deposited into a business’s account within a week of requesting it. A cash advance is an ideal solution for businesses that have run into trouble and need immediate funding. However, there are some benefits to these loans as well.

A merchant cash advance is a short-term financing option for small businesses that need fast cash to make essential purchases. This type of loan typically involves a small percentage of the cash you receive from each sale. Because repayment terms are flexible, merchant cash advances are ideal for small businesses. You can get up to $250,000 in financing, which means you can use it for anything from hiring new employees to preparing for a high-demand season.

Lower Your Credit Utilization Rate

One way to lower your credit utilization ratio is by paying off large purchases as soon as possible. Whenever possible, make these payments before your credit card issuer reports your outstanding balances to the credit bureaus. 

This will keep your credit score from dropping significantly. Make additional payments halfway through the billing cycle. If you need to make a large purchase, consider using a personal loan to consolidate debt instead. In many cases, these types of loans are much more advantageous than credit cards because they allow you to pay in cash.

Your credit score is made up of several different factors. While your cash advance could potentially negatively impact your credit score, it won’t affect it as much as a high utilization rate. To calculate your credit utilization ratio, divide the amount of debt you owe by your credit limit. Each credit card has its own scoring formula, but most creditors look at this one factor. However, it’s still best to lower your balance to avoid affecting your overall score.

Cover Unexpected Expenses

If you own a business, getting cash advances can help you cover unexpected expenses, but you also need to know if they are right for you. A merchant cash advance is a loan based on your history of credit card sales. The lender will charge you a percentage of the future credit card sales of your business. A merchant cash advance could be a viable solution if your business has a high volume of credit card sales.

A merchant cash advance allows you to quickly access capital. These loans do not require collateral, and you do not have to provide a business plan. Instead, a merchant cash advance lender will review your merchant account statements to see if you qualify. However, there are some requirements you must meet to qualify for a merchant cash advance, in which you must accept credit card payments and have other receivables.