Top 3 Questions and Answers about Business Cash Advance Loans
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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