1.Check References and Study the Terms
With any kind of loan you should only work with those companies who have a stellar reputation as fair and legitimate lenders, and they should have verifiable references and a solid track record. If you’re considering a business cash advance offer that looks too good to be true then you probably need to study the loan agreement more carefully because no loan – not matter what kind it is – is a steal.
Having said that, the business cash advance does have some distinct attractive features, and one of those is that the entire loan application process is usually simple, user-friendly, and free some headaches and underwriting nightmares that you may have encountered with a loan from a major bank.
In fact you should not expect to pay any upfront fees or closing costs when you do a cash advance merchant loan, and you should not have to put up any inventory, property, or equipment as collateral on the loan. If your lender asks for those then you should probably shop around for a better business cash advance lender who offers more reasonable terms and no out of pocket upfront costs.
2.Use Business Cash Advance Loans Carefully and Sparingly
Instead of paying installments like other loans, you are agreeing to pay out a percentage of your future income or sales. There is also no collateral to put up to backstop the loan, because the lender does not ask for collateral but instead requests a cut of your future business profits or revenues in the form of credit card payments. That is one of the benefits of a cash advance loan, but it is also one of the reasons that you should be very careful to use these loans only when you absolutely need them. The payment is coming right out of your future business revenues, and if you are not prepared to sacrifice those to get the cash you need then you should reconsider your plan to borrow.
The interest rates charged on these loans are also much higher than the rates businesses normally pay at banks, so signing up for a business cash advance loan means you are going to pay dearly for the money. That might be fine if you cannot operate successfully without the cash and nobody else is willing to give you a loan. But just keep that in mind and do not use this kind of high interest loan casually or it could wind up costing you more than it is worth. Use this kind of loan mainly for urgent times or emergencies because if your profit margins are slim this kind of loan might be hard to manage, the same way that any debt can be a burden if you aren’t careful.
3.Shop around and Compare Deals on Cash Advance Loans
It always pays to compare lenders, and with so many business cash advance lenders advertising on the Internet that may not be too difficult. Just go online and check out a few lenders, compare their interest rates and terms, and see which ones are offering the most attractive loans these days. Pay special attention to the interest rate or amount of money you’ll pay for the cash advance, because that is how most lenders make their money and the higher the fee for the money, the less of a deal it is for you as the borrower. Be a wise shopper and don’t fall for advertising hype but instead pay close attention to the small print and the real nuts and bolts of the loan application and lender agreement.
4.Crunch the Numbers and Seek Advice if You Need Expert Help
As with any financial transaction, of course, borrowers should should have an attorney or other financial expert review any legal documents before signing. Trust your gut and also double check your math. You want to be able to borrow your cash advance loan at a cost that will enable you to make more money in the long run, not go deeper into debt.
So, for example, if you can buy a delivery truck for $15,000 and use it to increase your profits this year by $15,000 that means the truck will pay for itself in one year. If you have to pay $5,000 to get a cash advance loan to go out and buy that truck then you’ll probably break even on the loan and the truck purchase within a year and a half, and that is probably a great investment.
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Those who own businesses are interested to know the basic characteristics of these unique loans, and three of the most common questions that they want answered are covered below.
1.What is a Business Cash Advance Loan?
As its name suggests the business cash advance loan is an advance in cash paid to a business owner based on their projections for future revenues. In other words the lender determines how much money the business will make over the next several months and then offers to make a cash loan in exchange for a cut of that future business income.
The loans are repaid by designating a share or percentage of the business owner’s sales and that is typically done by guaranteeing the lender a portion of the money made from credit card receipts. If you take out a loan this month, for example, you might repay it by giving the lender payments that are a percentage of your credit card sales over the next few months.
Because you are paying based on a percentage and not a set payment amount, if you record higher sales you’ll pay back more of the loan – but during months that your credit card sales are less you will be paying less money to the lender.
2.How Do Business Cash Advance Loans Differ from Bank Loans?
There are two aspects of business cash advance loans that make them especially unique and different from your typical commercial business loan.
• One way that a business cash advance loan differs from your typical bank loan is that there is no fixed repayment schedule – a feature that is always found in conventional commercial loans. So in other words you don’t have to make payments each month in equal installments like people are accustomed to doing with car loans and mortgages.
• The second big difference between these loans and mainstream bank loans is that the cash advance loan industry does not have to follow the same legal guidelines that banks and other traditional lenders do. So merchant cash advance loans are not regulated by the government or the banking industry the way that other commercial loans are.
That has created some resistance from the traditional banking and loan community, because they feel that cash advance loans should also be subject to the same kinds of regulatory oversight and scrutiny that their own lending practices must adhere to and follow. Because cash advance business loans operate in a rather unregulated environment, some lenders charge very high rates of interest. It is not uncommon for a business cash advance loan to cost the business owner interest that works out to more than a 100 percent annual percentage rate or APR – and some lenders will even charge 200 percent APR.
That would never be allowed with a typical bank loan, but for lots of business owners who have been turned down by banks these cash advance loans are useful and helpful, despite the high costs.
3.Are These Loans Here to Stay or Just a Product of the Recession?
The idea of cash advance business loans is relatively new, but it started before the most recent recession and has been part of the lending industry since the beginning of the 21st century. These days, of course, because of the credit crisis and the inability for many businesses to find financing the niche for merchant cash advance loans is growing rapidly.
There are dozens of companies who now make these loans across the USA, and it looks like they are definitely here to stay because they are doing a brisk business because although they carry high rates of interest they are relatively hassle-free and easy to get loans that can be processed fast and get business owners the cash need with hardly any questions asked.
Currently cash advance lenders constitute what some experts estimate is about 10 percent of the market for commercial loans to businesses, and that figure is expected to either stay steady or continue to grow. The one wild card or variable that could change those projections is if Congress decides to start regulating the cash advance sector the way that banks are governed. There are lots of new financial institution regulations coming down the pike this year, but it is unlikely that those will impact the business cash advance industry anytime soon.
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Whatever the reasons are for businesses to need cash, many find it hard to do it through conventional banks and traditional lenders – especially these days. So instead they are turning to special merchant cash advances or what is commonly referred to as a business cash advance loan.
With the influence of the 2008 and 2009 credit crisis still sending shockwaves through the economy, many businesses find it much more difficult to get the loans they need to continue smooth operations. Some need fast cash to take advantage of bargains and make strategic acquisitions of property, sign leases on stores or warehouses, or invest in new inventory and equipment to prepare for improvements in the economic outlook. Others just want to make their payrolls on time or cover their short-term expenses in order to stay afloat or avoid penalties and interest charges and dings on their credit reports. A merchant cash advance loan can potentially solve all of those cash flow problems without the hassle of applying for a conventional bank loan and without the difficulty of getting loan approval. Those who do this kind of business cash advance loan often find that it is a faster, simpler, and easier way to get the money they need.
The way a business cash advance loan typically works is through an arrangement based on the company’s future sales. Most of the time the lender agrees to provide the cash loan in exchange for repayment that will come from a percentage of the business’s credit card receipts. That kind of credit card payment plan eliminates the need for the business owner to put up other forms of collateral such as mortgage documents, pledges of existing inventory, vehicles, or other items that have value. Since no real collateral is involved there is no need to do things like appraisals, and that eliminates added expenses while it also cuts down on the time needed to process the loan and get the cash into the business owner’s hands.
Instead of following those traditional protocols and conducting the loan process the way a regular bank or conventional commercial lender would, the lender who does a business cash advance based on credit card receipts simply verifies that the business accepts credit cards. If you own a business then you can be expected to provide some basic information, such as documents to show that you are legitimately in business and have a credit card processing merchant account. You will also probably be asked to provide copies of your last 3-4 months worth of credit card receipts or merchant card processing statements, which the lender will use to determine your normal volume of credit card business or revenue that your customers and clients charge to plastic.
Then after the loan is made, a portion of those credit card sales that go through the business are earmarked as the loan repayment and they become the source of funds to pay off the loan. A business owner might borrow several thousand dollars, for example, to buy new inventory or finance an expansion or the opening of a new office and then dedicate a percentage of credit card sales over the next 12-24 months to service the repayment to the lender.
Because these loans are not subject to the same financial industry rules and regulations as normal bank loans do, they are somewhat controversial. The banking community would like to see them regulated because they represent competition for their commercial loan business and also because the banks and other regulated lenders think it is not fair for them to have to follow so many rules when those who do cash advance business loans can operate much more freely.
Most business owners don’t care one way or the other, as long as they deal with legitimate cash advance lenders who don’t try to cheat, defraud them, or charge exorbitant rates of interest. They expect to pay more interest for the convenience of these cash advances, and they usually only turn to them as a loan of last resort for emergency needs to keep a business going during difficult times. Those who borrow cash advance loans are usually already fed up with trying to get their money from conventional lenders, so they are happy to take their business to a cash advance lender instead of struggling to get a loan from their banker.
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Right now – in the wake of one of the worst financial meltdowns in history – people all over the world are skeptical of lenders and of banks in general. In 2010 we will see an even more aggressive push to pass laws that regulate the loan industry, and many legislators and consumer advocacy groups are calling for tighter rules regarding payday loans.
That’s because many consumer groups – and ordinary customers of cash advance payday loan businesses – complain that these particular loans are much too expensive. The main people who use this kind of short term loan are those who do not have much money to start with, so many watchdog groups believe that payday loans are just another means to make those who are poor even poorer and more disadvantaged.
So over the next few months there will probably be more news about the debate surrounding payday loans, and there may be attempts to limit the amount of interest and other fees that lenders are legally allowed to charge for doing this kind of loan. That’s good news for the average consumer, because under that kind of pressure payday lenders will be encouraged to keep their fees and charges lower – rather than hiking them sky high.
Interest rates this year are expected to go higher anyway, on all kinds of loans. Since payday loans are some of the most expensive types of loans out there, any rise in rates will be especially felt by the borrower who relies on cash advance paydays loans to bridge the gap from one payday to the next. So if you use this kind of loan keep an eye on rates and fees. Shop around for the lowest rates possible, because doing so can save you a tremendous amount of money in 2010.
Keep in mind that the biggest complaint is from people who get trapped in a vicious cycle of using these cash advance loans all the time. That is never a good idea for any kind of loan, so to use a payday loan wisely you should only turn to this kind of borrowing for special emergencies. If you get in the bad habit of using one of these between every single paycheck all year ‘round, you are basically just throwing away a large portion of your hard-earned wages. A better plan is to budget your money and schedule your bill paying so that you have enough to get you from one payday to the next.
You may find ways to use a cash advance payday loan to your advantage, of course, during those times when you just have no other way to get some money and you cannot avoid paying a bill or other urgent expense. Keep close track of how much you pay each time you take out a payday loan, and that will enable you to have a more clear and understandable grasp of your overall financial picture. Sometimes people borrow two or three hundred bucks to get their car fixed – and they use a payday loan to pay for it – but without having that car fixed they would be in worse shape and unable to get to work. That might be a good time to turn to a local cash advance payday lender. Or maybe you have been out sick and unable to work, so you are getting behind on bills. If you don’t pay them on time you’ll be charged extra, and a quick and easy payday loan might fill the gap and keep the creditors off your back until you get back on your feet.
Particularly in 2010 – with money already as scarce as hen’s teeth and unemployment at frightening high levels – consumer borrowing needs to be done with care, restraint, and a budget-conscious outlook and conservative attitude. Money is tighter than ever, and that can make a cash advance payday loan an attractive and tempting way to overcome challenges and deal with the continuing economic problems of the weeks and months ahead.
In the meantime government officials will hopefully be watching your back to make sure that nobody who does cash advance payday loans tries to take undue advantage of you. Stay informed, do your research and homework to learn as much as possible about loans and how they work, and then make educated decisions before you borrow. The bottom line for 2010 is that those who learn to make money and loans work for them will come out way ahead, despite the fact that these are challenging economic times.
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1. Don’t Use Them If You Don’t Have To.
First of all, you need to decide whether a payday loan is right for you. The question is an important one, and the answer is relatively simple and easy to understand. A cash advance is a payment or distribution of cash that happens in advance – which is why these are called “cash advance” loans. So the money gets advanced or fronted to you, the borrower, the same way that you might ask an employer to give you an advance on your pay. That means you are getting paid ahead of time or in advance of your normally scheduled pay day because otherwise you’ll run out of money and that will create serious problems. But if you don’t have a compelling and urgent need to get your hands on your paycheck money ahead of time, don’t use this kind of loan because you will just wind up paying way too much for that convenience or earlier than usual access to the cash.
2. Look for Cash Advance Payday Loans with Lower Fees.
With any loan you want to use those that charge the least amount of money, and loan expenses are generally two kinds. You pay an interest rate that is calculated as a percentage of the total amount you’re borrowing, and the higher the interest rate happens to be the more it is going to cost you to borrow the money. The other way you pay is through one-time fees or other miscellaneous charges. So to get the best deal on a cash advance payday loan you will want to look for those that have the lowest possible interest rate and no other additional hidden fees or special one-time charges.
3. Pay Back Your Cash Advance Payday Loans Fast.
Time is money, especially when you are borrowing money from somebody else with your cash advance loan. So make sure that as soon as you get paid you pay back the full amount of the payday loan. Otherwise you could end up paying lots more, and that should not be necessary. Don’t go out with your cash advance, for example, and buy some expensive items that you cannot afford or use the cash advance as a down payment on a much larger purchase that is not within your budget. Use the cash wisely, keep your expenses under control, and then pay back the debt immediately.
4. Make them Work for You, Not the Other Way Around.
Because the typical payday cash advance loan is a rather expensive way to borrow money, you want to make certain that this kind of financial tool is working in your favor. If you use this type of loan for all sorts of random reasons that cannot be adequately justified, you’re going to just end up wasting lots of money that you would be better off saving. Since your paycheck is going to come soon anyway, you don’t need to be spending a huge chunk of it ahead of time just to get your hands on extra spending money for various whimsical purchases.
Use these kinds of loans as a way to cover your expenses and tide you over so that you avoid more serious and expensive problems, because a cash advance loan should only be viewed as a way to get cash in a real emergency. Just because you want to go out on the town, buy a new dress or pair of shoes, or put a down payment on a gigantic plasma TV in time for the Super Bowl, that doesn’t mean you really must pay someone a big fee in order to give you some money between paychecks. You can do that, of course, if you want to. But that sort of strategy only makes the lender richer as you get poor in the process.
Follow these four guidelines and use common sense and a little bit of financial discipline to get the best possible deal on your cash advance payday loan. Used carefully and deliberately this kind of short-term borrowing may be able to help you avoid more expensive problems that come up when you unexpectedly run low on cash a week or two before the next pay day. That might happen because of an accident, an illness, or some other extreme situation. In that case this kind of loan could work for you just fine, but if you abuse the payday loan concept it can be too expensive and not a very smart way to handle your hard-earned paycheck.
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