The cash advance industry has encountered a great boom at present, as banking institutions have constricted credit and increasingly more small business entrepreneurs have required quick cash injection without going through a difficult loan application process.
A cash advance charges more than a loan, however the simplicity with which it can be acquired and the attractive repayment terms, where fix percent of the daily credit card sales is accrued until the cash advance is completely paid back.
Businesses that could gain most from them are the ones that are new in the market or those who have a bad credit score and have no collateral and locate themselves in need of a quick cash to cover unpredicted expenses.
High Rates And Fees
The interest rates on cash advances are referred to as the APRs, have customarily been considerably higher as compared to typical loan rates. Cash advance lenders can charge over 50% APR, with a few going so far as to 200%.
These excessive rates indicate that companies that request for cash advances usually have to pay off tens of thousands of dollars on the borrowed amount.
Additionally, most cash advance lenders have an originating fee that’s taken from the actual borrowed amount in addition to monthly servicing charges, which similarly increase the real cost of a cash advance.
Very expensive as the interest rates may be, the reality that business cash advances can be acquired in just a couple of days and can be directly paid from credit card sales makes them a perfect alternative for business loans.
Also, the cash advance lenders are known for their open procedure, and they quickly accept the borrowers that banks refused to offer loan. Even businesses with bad credit scores and no collateral can also get cash from this service without any problem.
Selecting Lenders Carefully
Merchant cash advances helping a multibillion dollar industry and, as long as the credit remains stiff, cash advances are likely to continue to be in high demand, mostly amongst restaurant businesses and retail stores, for which credit card sales comprises a large part in their profits. Therefore, it’s essential for businesses to carefully examine the terms and look for a trustworthy cash advance lender with suitable prices.
Here I again want to mention that cash advances are not loans but purchases and sales of future earnings, which indicates that they are not bound with any laws that positioned caps on interest fees or adjust creditors.