Five Key Questions to Ask When Choosing a Cash Advance Company

Navigating the tricky terrain of securing working capital can be as confusing as it is frustrating. The process begins with finding the right cash advance provider. Not all cash advance providers are created equal, so asking the right questions is essential in deciding who to choose as your lender.

It’s crucial to ensure that the company you select has your business’s best interests at heart and that they won’t lock you into an unsustainable cycle that your business can’t handle. To assist you in this process, here are five key questions you should ask your prospective cash advance company.

1. What happens if I default on my loan?
   While it’s not pleasant to consider, understanding the implications of defaulting is vital. If you encounter difficulties and miss payments, or if your business fails, the outcomes can vary. One significant difference between a business loan and a cash advance lies in the personal guarantee. For business loans, a personal guarantee typically holds you liable for the amount owed, regardless of your business's success. In contrast, with a cash advance, the personal guarantee only pertains to performance; if your business fails and you uphold your contract, the cash advance company cannot legally demand the outstanding balance. This is a crucial feature of a cash advance, and reputable providers will honor these terms.
2. What happens if my business falls under pressure?
   A cash advance provider charges a pre-agreed fixed cost for funding. Therefore, if your turnover drops during the repayment cycle, you won’t incur increased repayment costs. This characteristic makes a cash advance ideal for seasonal businesses with fluctuating turnover. Essentially, the amount you are quoted at the start is the total you will repay for that cash advance. In contrast, with interest rate-based financing, the amount owed could increase over time if repayment takes longer.
3. How do I understand whether I am using the funds properly?
   A merchant cash advance is best utilized for business-enhancing and growth activities. If your turnover increases or your expenses decrease due to the funding, that indicates you’re using it correctly. Good uses of a cash advance include:some text
   • Bulk stock purchases
   • Refurbishing an existing store
   • Opening an additional location
   • Upgrading equipment or technology for improved efficiency
   • Adding new revenue streams, such as a new product line or e-commerce platform
4. Conversely, a cash advance should not be used to cover losses or service other debts, as these decisions can lead to revenue loss and missed opportunities.
5. What are my options if I need an early re-advance?
   Each lender operates differently, but generally, there are two ways to access additional funding after taking a cash advance. The first is a ‘top-up,’ where you have been approved for a higher advance but only used a portion of it. Within three months of the initial advance, you can access the remaining funding without hassle. The second option is a ‘re-advance,’ which is available after paying off 70% of the original funding. If you identify growth opportunities before completing the repayment period, you can request it sooner. A good merchant cash advance provider will consider early re-advances on a case-by-case basis, evaluating your business's growth and payment efficiency.
6. What are my settlement options?
   Some cash advance providers offer a discount for early settlement of the cash advance. This amount varies over time as your balance decreases daily. Alternatively, if you know you want to settle early when you take the advance, your provider can inform you of the discount upfront.

In summary, these five key questions are essential when selecting your cash advance provider. If you have any additional questions, don’t hesitate to ask for clarification or further information.

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