One common trait in every successful business is maintaining a positive balance of working capital. Regardless, sometimes business owners will find their business in dire need of additional funding to accomplish a given target, like buying new and better equipment, buying advertisements to increase its products or services demand. Also, it might be for investing or opening a new office or simply paying off debt.
Whether you need extra finance to help ease your rough season or you’re pursuing a reasonably promising opportunity for the future, with many cash advance loan options available, determining the best way to secure this loan is pertinent for the life of your business.
Finance Products For Business
There are a variety of business loan options, specially made by credit providers for business owners. Determining the one that best suits your business is the ultimate factor. With the most talked about finance options been the line of credit, business credit cards, and cash advance, we will be looking briefly at each of them, highlighting the strength and weaknesses and where they cross.
Business Credit Cards
In the bid to accelerate the smooth running of the business as regards to immediate or unforeseen expenses, companies often employ a business credit card. Also known as corporate credit cards. An avatar of credit cards. Business credit cards are accounts granted to the enterprise. Only authorized employees or officers of the business are in charge of the card. The cards are used solely for authorized business purchases.
Nearly all businesses may make an application to obtain a bank card. Both small businesses and large corporations usually use the cards to buy essential items, and later pay for those purchases with the generated profits. Business cards will be offered to you based on your credit score and report.
Having a credit card for your business can make it easier for you to control your expenses and keep a tab on your accounting expenditures. Depending on the business agreement with the financial institution, the company’s credit card may come with a credit limit. No matter how easy these cards make it for purchases, it is still imperative to manage the business credit card effectively.
Pros Of Business Cards
- Easy to apply
- Fast or speedy approval
- Diverse reward programs
- Build credit
Cons
- Risk of abuse
- High-interest rates
- Limited purchase protection
- Can affect personal credit score
Bottom Line
A business credit card offers so many reasons why it should be the best business funding option for anyone. However, the pitfalls can be a cause of worry. Although it may be cheaper than a few other options of quick financing, its high-interest rate can make this smooth funding option an unimpressive way to borrow.
Nevertheless, your ability to carefully eliminate and control issues pertaining to corporate credit cards can see your business fully utilizing the benefits that it presents while properly tackling any potential pitfalls.
Line Of Credit
A business line of credit works similar to a business credit card. Also referred to as equity loan, it makes funds to run business available to most business owners by permitting them to draw an account balance up to an approved limit. This is where the business line of credit performs better than business cards. A business line of credit lets you withdraw cash to cover the costs of all your expenses, even down to those that can’t be paid using a credit card. Also, the interest rate in line of credit loans is significantly lower compared to the business credit cards.
You can apply and get a business loan line of credit solely based on your qualification, your credit score. In the business line of credit loan setting, you are not charged on the loan until you actually use the money, and you will only be charged for the amount you use.
Secured And Unsecured LOC
It’s essential to understand the difference between a secured line of business and an unsecured line for business. One remarkable similarity between lines of credit and credit cards substantially rests on the unsecured line of credit.
An unsecured line of credit usually do not require any asset like homes, cars, and the business itself to guarantee the loan. No collateral is needed — only the goodwill of the borrower or his words.
A secured credit line for business involves assets as collateral to secure the loan. This form of investment is regarded as a long-term debt facility and are usually secured by a registered mortgage over a property. In line with the terms, the lender can take over the assets, which could be the business itself once the borrower fails to meet up with debt payment. In general, the interest rates are usually so low, making it a desirable option of getting a loan.
Also, there’s a revolving and non-revolving line of credits. In revolving credit, you’re allowed to use up your credit limit. There’s no time frame placed on the use of your loan.
In non-revolving credit, the loan comes as a lump sum. It is only given once. It ends when you pay off your line.
Pros
- Help balance cash flow
- Interest incurred only on funds used
- Reliable access to funds
- Improves business credit history
Cons
- Requires excellent credit score to qualify
- Extra fees are applicable
- More prone to abuse
Bottom line
A business line of credit can benefit all businesses. There’s no guarantee that it will work for your business at all conditions. If you are quite savvy in the business, LOC might just be the best way to improve cash flow for your business. The option of not having to risk your business or assets presented by a business line of credit makes a viable alternative to business funding.
Cash Advance
With the high rise of the credit crunch, more and more entrepreneurs and business owners are turning to less traditional methods of business financing. One appealing detail about these forms of business loans is that they are not always too strict in their requirements before you can secure a credit. Irrespective of how prosperous or badly-off the economy may seem to be. Due to the many prospects it presents, many entrepreneurs, as well as business owners in recent times, are buying to the idea. One such opportunity is the cash advance.
What’s cash advance (merchant cash advance)
A cash advance is a form of credit card factoring. Borrowers sell their businesses’ future credit card receivables at a discount. Meaning they pay a flat rate for upfront money. Then the amount of the cash advance and the flat rate are paid via the deduction of a small percentage of the businesses’ daily credit card sales. This small percentage is taken until the entire payback amount is repaid. Cash advance borrowers can usually have their money in a matter of days after approval.
A cash advance provides immediate finance for your business loans is an excellent option for all small business owners, either because they don’t want to risk their personal assets, they don’t have a superb credit history, or simply because they need the funds as soon as possible.
Pros
- Quick and easy access to funds
- Lesser paperwork required
- No fixed monthly payment, interest rate or payoff date
- No collateral requirement
- Improves cash flow
Cons
- Most expensive form of funding
- Daily deductions on credit card receipts
- Not a permanent solution
- Line Of Credit or Business Credit Cards or Cash Advance
Bottom line
The amount of money you might get from a cash advance companydepends on several factors. To secure cash advance loan, factors like the amount of your credit card transactions, your gross monthly sales (credit cards, cash, checks), the longevity of the business, and sometimes the type of business you own comes under scrutiny. A significant advantage of an unsecured loan is that there are no fixed monthly payments you payback the lender as you sell your products or services to your customers that pay with credit cards.
Even though your credit history will be checked, it’s not as important as other factors. It means that even if you have an unimpressive credit score, you may still be able to get your loan. This is very unlike most business loan options.
Takeaway
A cash advance company provides financial aid to the business of all sizes (be it a small business, medium-sized business, or start-up business). When you want to seek added finance for your business, you must adopt a strategic approach. Prudent planning is expedient for ensuring success in obtaining business loans.
There’s no generalized best financing option for any business. Whether your business will benefit more from a business line of credit, or credit cards, or card advance depends solely on you and the business. Every business is unique, and situations needing an additional source of funding differ as well.
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