One of the main challenges as a business owner when starting a business is coming up with the working capital you need to purchase inventory or other revenue-generating initiatives. It can seem like a type of business Catch 22: you need inventory to make money but you can’t buy inventory until you have money. Even more established business owners can run into this issue when their cash flow dries up or when they need to stock up before a high-volume season such as summer or the holidays.

Business financing can help entrepreneurs when starting a business or supporting cash flow. But financing options can be limited for a startup business or a business owner with a low personal credit score. Traditional lenders are unlikely to approve many businesses for small business loans such as business lines of credit or even invoice factoring. And alternative lenders are likely to charge higher interest rates for traditional small business loans.

But there is a financing option for small business owners with lower personal credit scores or no assets for collateral. It’s called business cash advance, or merchant cash advance, and it allows you to use future sales as collateral. As a result, obtaining a business cash advance is faster, easier, and often less expensive than traditional financing options.

 

What is Business Cash Advance?

A business cash advance is a financial instrument that is similar to invoice factoring but for retail businesses, but instead of selling unpaid invoices to the lender in exchange for a lump-sum payment, you sell a portion of your future sales.

How does that work? Essentially, you agree to give the lender a portion of your sales – normally around $0.12 – $0.45 on the dollar – until you have repaid the loan. This limits the burden that repayment places on your cash flow and streamlines payments to make your job easier as a business owner.

Interest rates are simpler for business cash advances as well. Lenders don’t generally charge interest rates on the lump sum over time as in other small business financial instruments, which results in repaying significantly more than the loan amount if you don’t repay the loan quickly. Instead, they set a repayment amount which is 20-30% higher than the provided funds.

What would that look like? Well, let’s say you take out a business cash advance loan of $10,000 with a 30% repayment amount and a 15% holdback rate. You would pay the lender 15% of your business’ credit card sales until you paid back a total of $13,000. Small business loans can be complicated enough to make many business owners’ heads spin, and business cash advance is refreshingly simple. Plus, the rates are fixed, which gives you greater security as a business owner.

 

Getting A Small Business Loan

 

Qualifying for Business Cash Advance

Qualifying for a business cash advance loan is a lot simpler than the approval process for small business loans from traditional lenders. It can take a lot of time and paperwork to get approved for a business line of credit or business credit cards. You have to draft a business plan, have a high personal credit score, and prove that you have enough cash flow and revenue potential to repay the loan. You also may have to put up collateral, which will have to be inspected and valued.

In contrast, business owners need to show just three simple things to qualify for a business cash advance.

First, you have to have been in business for a certain amount of time. Traditional lenders only offer business financing to business owners who have been operating for at least a year. But Strategic Capital only requires that you have been in business for six months to qualify for business cash advance financing. Which makes a business cash advance a valid startup loan option for many newer businesses.

Second, you will have to show that your personal credit score is high enough to show you can be trusted to repay the loan. Because you pay back business cash advance from your future sales, the personal credit score threshold is much lower. But you still need a score of 500 or higher.

Third, you need to have some cash flow. This is the most important qualification because you pay back a business cash advance from your sales. So you naturally have to show that you make enough sales to repay the loan in a reasonable amount of time at the holdback rate. The amount of revenue that lenders require can be quite high, but Strategic Capital just requires that you have at least $10,000 in monthly revenue.

And that’s it! Much simpler than having to draw up a business plan and bring it to bank after bank, as you do with traditional lenders and small business loans. You can get business financing faster and start generating the cash flow your business needs to succeed.

 

How Business Cash Advance Helps Business Owners

Who should opt for a business cash advance loan? This type of financing is ideal for businesses that have revenue but little working capital or assets to offer as collateral. Business cash advance financing can provide business owners with the working capital they need to purchase more inventory or make other investments to generate cash flow. It can also be used to cover an urgent working capital need such as an unexpected expense or decrease in revenue.

Because of its simple approval process, business cash advance loans are ideal for business owners who need business financing quickly. And since you repay the loan from your future revenue, you can qualify for a business cash advance even if you have a low personal credit score, no collateral, or have not been in business for very long.

A business cash advance is also simpler and easier to pay off than most small business financing solutions. You don’t have to worry about interest accruing over years or having to file bankruptcy when your loan suddenly becomes due. Instead, you contribute a small portion of your revenue towards the loan until the total is paid off. And you know in advance how much you are going to have to pay back and what percent of your revenue you will need to withhold for the lender. Which makes it significantly easier to plan around repaying your business cash advance loan and minimizes its impact on your future finances.

 

Apply for Business Cash Advance Now

Small business financing is easy and affordable with a business cash advance. All you need is a reasonable personal credit score, six months of experience running your business, and at least $10,000 in revenue. You can get approved for a business cash advance much faster than for other small business financing solutions, which means you can get the capital you need to generate cash flow and build your business.

Checking for pre-approval will not affect your credit score.

Jeremy Pearlman | Jeremy is a New York native enjoying the good life in the Big Easy. In his writing, Jeremy covers a wide-range of topics, but his specialties are personal finance and business leadership.