As a small business funding experts, we used to have meetings with numerous entrepreneurs to discuss their financial concerns and cash flow issues. We recently met a small business owner who started a franchise business in her mid-40s with IRA 401k funds but now having rough days. Her payments check had bounced and she was really disturbed, as she had to make payments to her creditors and feared the thought of having to shutdown her franchise.

She had experienced irregular cash flow deficiency in her initial business stages just like many others. In order to bounce back quickly, she took out a cash advance which led her into the renewals cycle. With cash advance funding, she had to make 30% of her monthly sales to the cash advance merchant.

At Merchant Advisors, we frequently get many calls from business owners who are experiencing strong debt cycle due to cash flow issues. As a financial advisor, I have seen several cases where a small business recognize the risks of business loans and fast cash advances late and pay big percentages of their sales, plus the exclusive fees and high interest rates to the lender. Though, there are certified lender that are willing to help small businesses but approaching them require a little research and time and many business just rushed into the decision of choosing one.

Small business owner needs to work smart and try to learn the standards of this self-regulated industry. They need to edify themselves about the industry practices and the impact of cash advances on their small businesses. Few vital steps can help you understand the risk involved before signing the dotted line.

  1. Getting an online business loan or cash advance is pricey so you should look for alternative options first opting for these. Before choosing among online loans or cash advances, enquire about SBA lenders or investment lenders that provide affordable interest rate and longer repayment terms.
  2. After choosing one of these loan or cash advances, discuss flexible repayments terms with your lender. Even if you have to pay a little fee, it will likely be less pricey than short term online lender.
  3. After selecting one option, the next most important step is to analyze your daily repayment. You will have to make these payments for the life of the loan. So, think carefully before making a decision whether you are able to pull out the cash for repayment or not.
  4. When taking an online business loan or cash advances is the only possible choice for your business, always go for the long term loan with smallest possible repayment terms. With a long term loan, you might have to pay more in the long run, but you need to think about your business cash flow. In order to keep up with the cash flow, you might have to renew your loan half way through in case of short term loans. A long term loan with the lowest possible repayment terms is a more suitable option in that case.

With proper planning and research, you can effectively run your small business without getting spellbound into a debt cycle and cash flow problems.