When looking for the best form of commercial finance there are several options available to you. There are the traditional forms of business finance such as a bank loan, overdraft facility or secured loan and then there are new, alternative business funding options available.
In this article, we highlight the differences between the two avenues a business owner can explore.
What are the advantages of a business cash advance?
There are many aspects of this product that are unique compared to that of a traditional unsecured business loan. The first being that a cash advance works with your cash flow. What does this mean? It means that you could raise up to 150% of your monthly card sale revenue as the borrowed sum.
You repay on the borrowed amount as and when you make sales on your card machine otherwise known as a merchant terminal or PDQ machine. Let’s say for example your business turns over £5000 per month on card sales. The funder could offer an advance of £5000 plus the payback amount of £1250.
You would start to pay off the £6250 as and when you make sales. You will also agree on a comfortable percentage of each card sale to start the repayment process. This could be typically 10% – 15% of sales. For example, you make a sale of £80 on your card terminal, £8 is paid off your advance and the balance of £72 is paid into your account.
There are no extra, hidden fees or early or late repayment penalties with this type of funding – just one upfront agreed on repayable amount and a percentage of future sales to repay the loan.
This means when your business is low on sales then you pay back in line with those sales – in other words, less. And of course, if you have a bumper month you’d be paying off the advance quicker. The application doesn’t take into account your business or personal credit profile. In fact, it offers businesses with poor credit history a great opportunity to find the funding they need to grow.
A traditional business loan requires your business to pay off a loan based on a set amount each month. It also works on a standard APR calculation. There are in many cases fees, charges and penalties for not meeting those payments so it’s best to check with the bank that you won’t encounter any nasty surprises. A business bank loan is usually a secured loan which means they require an asset such as your home or commercial premises as security against the borrowing. A business cash advance doesn’t require any security and is classed as an unsecured business finance.
The best idea is to compare the differences and benefits of one over the other. Eligibility and application timings are undoubtedly quicker and easier with a business cash advance too. There is no need for a business plan and long application processes and meetings. It’s a simple straightforward application that once accepted is quick to fund usually in just a day or two. This again is significantly different to the timescales associated with a bank loan.
A cash advance is also backed by the UK government too. They have invested millions via The British Business Bank Investment arm. It would suggest to many small business owners and SME’s that alternative business funding isn’t an ‘alternative’ anymore – in fact, it is becoming more and more mainstream each month.