Have good revenue and need quick cash? Then you want a cash advance.
When unexpected expenses arise, a cash advance for your business can be a vital tool. With a quick & easy application process, the funds can be used for almost any business use. Compare business cash advance options with Upwise.
What is a cash advance?
A cash advance is a type of short-term financing usually provided by a funder or credit card processor. When you take out a cash advance, you’re borrowing money against your future revenue or future credit card sales. You can typically get a cash advance in a few different ways. Through out this article we will break down how to get a cash advance, how they are paid and review different services and products they can be used for.
Cash Advance Details
Cash Advance Pros vs Cons
How Does a Cash Advance Work?
When a small business finds itself in a bind or needs access to quick capital there aren’t many options available. This is one of the advantages of a merchant cash advance. A merchant cash advance provider will approve your for a certain amount, which you can usually take any amount up the approved amount. The merchant will repay the advance with a percentage of each day’s credit card sales. Interest rates or fees are determined by a factor rate, essentially a multiplier of the advance amount. A cash advance is a way to tap into expected revenue of your business, so here are the main terms to know.
- Funding Amount – the amount a funder will approve your business for is determined by the healthiness of your cash flow and monthly revenue.
- The Repayment amount – is determined by the amount of funding you get advanced including the factor rate and any fees included.
- Factor Rate – The holdback is the percentage of daily revenue or credit card sales generated, which will be held by the funder to repay the funds. This is translated to a factor rate.
- Payment – the payment amount is determined by the terms of the advance. Cash advance funders offer daily, weekly and bi-weekly options for repaying the advance.
Who Qualifies for a Cash Advance?
Almost any small business that is generating revenue can qualify for a cash advance, which is why it’s so desirable by many business owners. But like any financing product, each funder will have it’s own qualifications and you do have to meet the minimum requirements to be eligible.
The general minimum requirement for a cash advance are:
- 6 months -1 years time in business
- $100,000+ in annual revenue
- 500 minimum credit score
Merchant Cash Advance Requirements
* Note: These cash advance requirements are based on previous Upwise customers and is just an average.
Is Cash Advance Funding right for me?
Knowing if a cash advance is right for businesses depends on the ROI (return on investment) on what you will be using the cash advance for and the final cost of said funding. Basically, you want to find out after all the dust settles if you will profit more than the fee of the funding and that the use of funds will bring in additional revenue for the business for the years to come.
What can a Cash Advance be used for?
A cash advance unlike bank financing that are heavily limited on what they can be used from can be used for many purposes IE:
- The refinancing of debt in connection with an expansion of the business through newly renovated facilities or new and used equipment
- The purchase of land and land improvements, including grading, street improvements, utilities, parking lots, and landscaping
- The purchase of existing buildings
- Additional Staff or employees
- The purchase of long-term machinery
- Payroll, day to day activities, and back taxes
Cash Advance Pros & Cons
- You may still be eligible for a Cash advance even with a low credit score.
- Fast funding process once approved money can be in your business account in 24-48hours.
- No collateral is needed such as property or equipment
- Upfront fees that never change and no unexpected charges
- This form of funding may be more expensive than others carrying higher interest fees
- Depending on your repayment agreement funds may get deducted daily which may affect cash flow
- No grace period credit card will begin to accumulate interest on day one.
- Cash advances are temporary fixes to help businesses get back on their feet.
What is a cash advance fee?
Cash advances are a fast and easy way to get cash, but they tend to come with larger fees that may outweigh some benefits. The first thing you must do before you take out a cash advance is to come up with a financial plan which assures your business can profit from the advance even with the higher fees. Include in this plan
With cash advances, most funders charge a flat fee or percentage of the transaction — whichever is greater. Some banks will vary the amount based on how you access the cash.
But these fees aren’t the only costs tied with cash advances. You’ll pay an interest rate on the transaction, as well. This is different from the interest rate on normal balances because it starts accumulating the next day immediately without a grace period.
How to get a Cash Advance
We make it easy, simply apply online and we’ll be in touch to go over your options.
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Documents You'll Need to Apply
- Completed Application
- Driver’s License
- Voided Business Check
- Business Bank Statements (Last 6 Months)
- Credit Score
You may also be requested to provide the following for larger dollar amounts over $100K:
- Balance sheet
- Profit & Loss Statements
- Business Tax Returns
- Personal Tax Returns
- Account Receivables Report (if securing AR)
- Inventory List (if securing inventory)
*See above for cash advance loan requirements.
No matter how much planning you do, small business ownership is full of surprises. Thinking on your feet and coming up with quick solutions is often the difference between shutting your doors and shutting out the competition. When time is money, a merchant cash advance can get you financing in as little as 24 hours.