How Safe Are Business Finance Advances?

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There will come a time when many business owners rely on banks and lenders for funds, whether that’s as a way of financing a new business to get it off the ground, for growth or to make improvements. There are a variety of business finance options available to suit all requirements, and doing your research means you can choose the best for you. Merchant cash advances are used to access funds quickly and free up some cash flow – but how safe is an advance? Read on to find out more about the types of business finance available, as well as the pros and cons of advances.

What do we mean by business finance?

Business finance refers to the process of borrowing money to make your business a success. There can be many reasons in which a business may choose to borrow funds, for example, if they’re looking to grow and need to purchase new premises or employ more staff, or if they’re just starting and need a boost to get them off the ground.

The type of business finance that you choose all depends on what you’re hoping to get from it. There may also be various requirements that you will need to meet to be rewarded with certain types of finance, so this should be considered when deciding on the best course of action for your company.

Types of business finance

There is a huge range of business finance options available depending on what you’re hoping to use them for, such as:

  • Bank loans: A traditional bank loan can be applied for to finance your business, they can provide you with large amounts, and you can decide how to use it. However, the bank loan application and approval process can be lengthy, and banks tend not to offer them to businesses that have been operating for under 2 years.
  • Small business loans: If you find that you’re not eligible to apply for a bank loan, a small business loan could be best for you. You will have to pay back your loan with interest, but they are specifically tailored to meet the needs of a small business. They are approved by looking at your business’s health, rather than your credit score.
  • Invoice financing: If you’re a business that deals with invoices, a late payment can have an impact on your cash flow. Invoice financing allows you to use a lender, that will buy your invoices as collateral, so you’re still getting the funds you need on time and pay them back when the funds are received.
  • Equipment loans and leasing: These loans are perfect if you need funds to buy equipment or machinery that you cannot run your business without. It means you don’t have to find a lump sum of cash to pay for your equipment and disrupt your cash flow. In some cases, with leasing, you can upgrade your machinery when the loan term is complete.

Merchant Cash Advances

This type of business finance is not too dissimilar to invoice financing. Both can free up cash flow, but merchant cash advances are a way of borrowing money and paying it back with future sales. These advances don’t count as a loan – they are simply transactions that have no interest rates, and you won’t incur any debt like you would with a small business loan or a bank loan. They can come with a range of benefits for small businesses that we will look at below.

The benefits

There are a few advantages that come with choosing to finance your business with a merchant cash advance. They are great if you need to free up cash flow within the business when money is tight. The approval process is quick, which means you can have the money in your account as soon as you need it.

Lenders that offer merchant cash advances do not base their decision on your credit score, so if it is not great, you don’t have to rule out finance options completely – if you take consistent transactions through credit cards, you’ll likely be approved no problem! They also don’t count as a loan, so you won’t have to manage any debt or repayments in the future.

Are they safe?

One of the main things to consider when opting for any type of business finance is if you will be able to meet the repayments promptly without compromising your financial stability. Business advances, whether that’s invoice financing or merchant cash advances both come with their advantages and disadvantages, and it is up to you to decide if your business would benefit.

However, because Merchant cash advances are based on your credit card payments, this means that you won’t have to pay more than you can afford – It may take you longer to pay your lender, but if sales are slow for one month, you don’t have to worry about not being able to make repayments.

Invoice financing is also a type of business advance, but they tend to pose more problems than merchant cash advances, for example, they provide less confidentiality between you and your customer and can interfere with business relationships. So, whilst they are both safe, it is important to acknowledge that one may suit you better than the other, depending on your business’s requirements.

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