Small Business Loans Versus Business Cash Advances

November 21, 2020 - general

Small Business Loans Versus Business Cash Advances

 

Many business owners are struggling to find working capital. Once readily accessible to most businesses, small business loans cash advance are harder and harder to come by. Thankfully, business cash advance providers have stepped up to fill the gap. Some business owners are skeptical, and hesitant to be open to the idea, but there are many benefits to the business cash advance program. While they both certainly have strengths and weaknesses, in this article, we hope to clearly explain how they work and what their benefits can be over traditional small business loans.

Who Qualifies?

Business cash advances are very easy to qualify for. Since they’re based on revenue from credit card processing, the biggest qualifying factor is whether or not you accept credit cards as a form of payment, and how often you have sales to run. This makes most retail businesses and certain service-based businesses excellent candidates because they usually accept credit cards and the cardholders are physically present at the point of sale. Unfortunately, most home-based and internet-based businesses don’t qualify. You have to process at least $5,000 per month in credit card sales, and underwriting also likes to see that you settle transactions at least 10 – 12 times every month. Personal credit is not a big factor; the only stipulation ist that the owner’s FICO score is above 500 and there are no open bankruptcies.

Application Process

The application process is very simple. A one page application is filled out and signed by the business owner. The application contains basic administrative data about the business and the owner(s) and usually also lists a few trade references. The signature authorizes the cash advance provider to obtain a copies of the applicant’s business and personal credit reports. Pre-approvals can be given within 24 hours of the application being submitted along with the business’s 4 most recent credit card processing statements. At lease one, if not all, of the statements must be complete (i.e. all pages submitted) so underwriting can review them completely, looking at credit card processing activity, transaction count, average ticket size, batch frequency and rate analysis. The pre-approval will consist of a few different funding options based on the statements you submitted, along with a list of additional paperwork you’ll need to submit prior to approval. This can vary slightly on a case by case basis, but here’s a complete list of paperwork that’s generally required:

Signed, completed application.

4 most recent credit card processing statements. Seasonal businesses may have to submit more so underwriting can fully understand your seasonality.

3 most recent business bank statements. This should be the account where your credit card deposits go. If that account sweeps to another operating account, those statements may also be required.

Business lease. Underwriting will need the pages listing the parties to the lease, the term and expiration date, the property address and the signatures.

Proof of ownership. This can be a business licence or articles of organization.

Driver’s license or other state issued identification card.

Voided check.

Deals over a certain size may require year-to-date financial statements or the most recent tax returns.

 

 

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