Ten Problems to Avoid With Business Cash Advances

by Stephen Bush

Published on this site: August 23rd, 2006 - See more articles from this month

Even thriving small businesses frequently need more cash than they can borrow from a bank. One of the least-known commercial financing strategies for small businesses is potentially the single best strategy for obtaining needed cash for growingtheir business. This commercial financing strategy uses an under-utilized business asset (credit card receivables) to obtain business cash advances based upon a merchant's sales volume. These business cash advances typically vary from $5,000 to $250,000. Small businesses will frequently benefit from converting future cash flow into immediate working capital. The most likely candidates to benefit from this strategy are restaurants, bars, service businesses and retail stores.

This strategy is also known as "credit card factoring". Many small businesses have relied upon a commercial financing strategy called "receivables factoring" which allows them to sell their future receivables at a discount. Most small businesses cannot adequately document their receivables in order to qualify for this kind of commercial financing. Many other small businesses (such as restaurants, bars, service businesses and retail stores noted above) simply do not have such receivables to rely upon as a commercial financing tool.

What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business. Business cash advances up to $250,000 can be obtained based on a merchant's sales volume and future credit card sales.

Before employing this strategy, small businesses should realize that there are several recurring potential problems that they need to anticipate.

Several of these problems are highlighted below.

• Up-front fees
  
• Closing costs
  
• Financial Statements required
  
• Collateral required
  
• Fixed term to pay off the business cash advance
  
• Fixed payments to pay off the business cash advance
  
• High credit scores (680 to 700 or higher) required to qualify
  
• 2-3 years or more in business required to qualify
  
• 12 to 24 months of documented credit card sales of $10,000 to $25,000 or more required
  
• Maximum business cash advance of $10,000 to $50,000

Not all of these potential problems will be relevant to each commercial borrower. Most commercial borrowers will encounter at least 2-3 of these problems if they are reviewing business cash advance programs that use credit card receivables as the basis for obtaining short term business loans. It is not necessary to accept any of these problems in order to obtain business cash advances based on future credit card sales. There are viable credit card receivables programs which avoid all of the problems described.

As noted above, there are several major obstacles involved when obtaining a business cash advance. A recommended follow-up to this article discusses when a commercial hard money loan might be appropriate for a business to consider
(http://aexcommercialfinancing.com ).