How To Secure A Business Cash Advance
If you are wondering how to secure a business cash advance, look no further. Business cash advances are a type of lending, based upon a businesses projected, future revenue. Unlike a traditional loan, a business cash advance effectively sells the future sales of your business to the lender, rather than taking out a borrowed loan amount with interest.
How Does a Business Cash Advance Work?
Unlike a standard business loan, you will not receive a lump sum of money when you take out a business cash advance, nor will you have to pay interest in the same way. Instead, you will not have interest running as it would with a traditional loan with the fees reagreed. Business advances have a fixed deadline you must meet, operating in a different way. An example of a business cash advance is as follows:
- Advance amount: £15,000
- Amount repayable: £18,000
- Monthly repayment percentage: 20%
As the interest is set at 20%, the amount totally repayable will be that off £18,000, £3000 more than the initial amount borrowed. Rather than seeing this as a proportionate amount of interest, the 20% taken will instead be taken from the revenue you make.
How Repayments are Taken
Essentially, if a customer pays you £20, you will keep 80%, or £16. The lender will receive the following 20%, which would be £4 in this case. Rather than paying back a huge lump sum of interest, this allows for a “pay-as-you-go” form of borrowing. As the repayments are paid back in such small amounts, it will take some time to repay your business cash advance back. Even so, the drip-effect format of this form of borrowing allows for you to make money while you are borrowing.
There are some important elements that you must understand here. The repayment method is proportional, meaning you pay back more when your revenue is currently higher while you pay less while business is slow.
You will always be paying back the specified amount though, regardless of whether business is going well or not.
In the UK, taking out a business cash advance will depend on you meeting certain specific criteria. This will differ from lender to lender, but generally, the rules that apply from one trusted business cash advance lender will mirror all others.
Usually this is more relaxed than traditional forms of lending, but generally, you will need to have the facilities to take card payments. This is because business cash advance interest is repaid through these card payments.
Other criteria that you must meet include that of being a UK based company, a minimum of six months trading as a business, a strong history of taking card payments with enough revenue to prove your affordability and evidence that you are able to justify the loan amount you desire.
Not all lenders desire a credit check with business cash advances, unlike other forms of loans. You should speak to your lender of choice and discuss their terms before opting for a business cash advance.
