Cash Advance
Cash advance offers consumers and businesses a source of funds and capital when their finances are coming up short. Cash advances for consumers are often known as “payday loans,” however providers of merchant cash advance services tend to not use the word “loan” for reasons that will be discussed below.
As the name implies, a cash advance involves a business that provides customers with money that must be repaid later. In essence, it is a type of short-term loan. Many people may have trouble paying their bills due to any number of circumstances. For example, they may have to deal with unforeseen expenses or their hours at work may have been cut back. Also, some consumers may simply need extra money to pay for a vacation or for a high school graduation party.
The cash advance provides cash to customers with minimal paperwork and hassle. Compared to applying for loans from a bank, the cash advance application process is very simple and the approval process is much faster.
How it works
Cash advance loans provide quick cash but generally in limited amounts as compared to what might be available with a conventional bank loan. Generally no collateral or security is required to qualify for a cash advance.
In addition, even people with bad credit histories can often obtain a cash advance loan. The main requirement is that the person applying for the loan is employed. The repayment term of a cash advance is generally the borrower’s next paycheck – thus these advances are also known as payday loans.
The cash advance providers make money by charging a fee when the loan is repaid. The fee generally is proportional to the amount of money borrowed – the larger the advance, the larger the fee. Note that if you do not repay the loan by the due date, there will generally be penalties and interest rates applied to the loan.
As the cash advance is paid from the borrower’s pay check, credit scores are usually not an impediment to qualifying for these short-term loans. However, to use the cash advance in a responsible manner, borrowers must make sure they will be able to repay the loan on the due date.
If they need long-term loans, they should apply at a bank or other lending institution.
Merchant cash advance
A merchant cash advance is similar to that offered to consumers except that it is offered to businesses instead.
Even businesses with relatively low credit scores can usually qualify for a merchant cash advance. While the consumer version of this loan is repaid by the next payday, the merchant loan is repaid according to the credit card payments received by the business.
So in order to qualify for a merchant cash advance, the business must accept credit card payments from customers. Another difference that applies to the business cash advance is that there is no due date. The repayment term depends on the amount of credit card payments the business is receiving. So in a sense, the merchant cash advance is more flexible than a regular business loan.
The providers make money by taking a significant percentage of each credit card payment. In the end, the full repayment may compare to a short term loan with a very high interest rate.
However, for merchants that are having difficulty obtaining conventional business loans or for those that need money quickly, the cash advance is often the only option. Compared to a bank loan, the cash advance application and approval process is very simple and quick. The amount of cash available is more limited, but the repayment schedule is adjusted to the business’s cash flow.
Merchant cash advance providers generally do not consider these advances as “loans” as they are trying to avoid regulations that apply to business loans. Instead they often describe the cash advance as a “credit card receivable funding” or as a “sale of future credit card receivables.”
How to obtain a cash advance
The Internet is probably the best place to shop for cash advance services. Even if you are looking for storefront locations in your area, the Internet will allow you to quickly find nearby options.
Simply use one of the major search engines to find multiple pages of results that offer both local and online services. An online provider allows you to complete the entire application process over the Internet.
When comparing different offers from cash advance providers, check their fees and also make sure you know about any penalties and interest rates that will apply if you are late making payments. Check to see if they have any requirements to qualify for a loan. For example, providers may require the borrowers to have a certain income or an active bank account. There may also be age and residency requirements.
A good alternative when used wisely
The cash advance provides merchants and consumers with access to quick money even in cases where they would have difficulty receiving traditional financing.
However, it is important that the cash advance be used wisely with close attention to one’s budget and ability to make future payments. Generally, the fees are high enough on their own, but the costs can really skyrocket if the customer fails to repay by the due date.
If you shop and compare and make sure that you understand all the terms, the cash advance offers a safe optional funding source.