A small business cash advance is intended to make merchant cash easier to handle. This is particularly true during low season, unexpected sales growth periods, and other times when money becomes tighter in the company. Here are five reasons why you might need a small business cash advance.
1. Improve Cash Flow Management
Cash flow is the lifeblood of any business. You can never have too much of it. With a more substantial business checking account balance, fluctuations in cash flow are more manageable. By using a small business cash advance, handling cash flow becomes easier. Instead of finding that money is getting tighter and running the risk of not being able to make payments on time, it can smooth out potential bumps in the road.
2. Reduce Worry
Running a business is stressful and can create anxiety when there are too many problems. Financial concerns are always troubling. Stress can materially change how a business is managed when the owner is frequently troubled and feels like their back is against the wall.
When the business generally performs acceptably but suffers from fits and starts with sales revenue that varies widely from month to month, that doesn’t help. Using an advance against future sales can reduce the number of bumps along the business journey, making it more enjoyable.
3. Avoid Giving Up Equity to Raise Short-term Funds
Businesses struggle when they were originally launched with too little capital. Unless the profits have been substantial in the early years, this doesn’t get resolved and leads to added difficulties. At a certain point, some founders will consider easing the financial stressors by taking on a partner. This may not be preferable because it involves permanently giving up partial ownership. Any upside from the business, including a profitable exit, would be reduced too. Also, dealing with a partner – whether they originally come in as a “silent” one or not – creates a different working dynamic. For founders who enjoyed their autonomy, this comes as a disappointment that they couldn’t remain the sole operator.
4. A Business Loan Is Not Required
Business lending typically involves borrowing over several years. When you only need some extra cash to cover seasonal lows, it’s a mismatch between what’s required and what’s available. Qualifying for a business loan is also a more difficult process in many cases.
5. A Quicker Solution is Needed
Business loans can require quite a while to get arranged. When the business is under financial constraints now, that’s not good news.
However, cash advances linked to merchant sales tend to get approved and issued sooner. This is because it’s a simple matter to verify the past level of sales and vet the financial receipts relating to them. The lender can be assured of the likelihood of repayment using various verification methods, making it quicker to issue the advance.
Accessing business lending and advances is sometimes preferable to seeking an investor in the business. It avoids giving up an equity stake to solve a short-term problem. Doing so also allows the business owner to focus on the business operation and avoid sleepless nights too.