What makes business cash advances a favorite choice for the small business wigs is the readiness with which it is granted. Speedy processing is possible due to the fact that no collateral is required and no credit checking is carried out by the lending houses.
How to apply for business cash advances:
Application process is simple and straightforward at least as compared to traditional lending procedures. The requirements by the lending institutes are as follows:
- Merchant account statements for the same period
- An application that fits a standard page size
- Business bank statements for three to four months
Final say from the business cash advance lenders will reach you within 24 hours (maximum) of application submission.
Terms & Conditions of Business Cash Advances
There is much difference between the conventional loans and business cash advances as far as rules and regulations are concerned. The normal business loan carries a certain amount of interest and needs to be paid back within agreed date. Final payment includes both principal figure as well as total interest. The term for such loan is normally counted in years. On the other hand, business cash advance comes with holdback percentage, factor rate and a certain term that usually refers to months.
Difference in Total Cost
Let us now examine which option makes an inexpensive choice – traditional loan or business advance. Suppose you borrow a traditional loan as whopping as $50,000 at an annual interest rate of 7%. If the term is 7 years and you are obliged to pay off monthly, then it will take 84 installments to make the full payment. Monthly payment of $755 will make a huge total of $63,420 for that time period.
Compare the statistics with what you need to pay for business advance. At a general factor rate of 1.5, holdback rate of 20% and a shorter term of 15 months, the required installment for the same loan volume will be $67,500.
Advantages of Business Cash Advances
From the above fact and figure, it is quite clear that business cash advance is a costly choice. In spite of this fact, this option is much sought after. The major advantage of taking out such advances is that you get the loan almost instantly. Approval rate is very high and that is not a case with normal business loan.
According to the annual banking report, the approval rate for conventional business loan is close to 45% whereas in case of big banking houses, the rate drops down to 10%. The rate of approval for business cash advance ranges between 85-90%.
Business Cash Advances – A Risky Proposition for Lenders
The providers of business cash advances take a bigger risk by granting the loans on the basis of previous months’ sale data. To cover the risk, the lenders charge higher rate of interest and also take some measured steps for loan collection.