Commercial loans, and in particular small business loans, have been one of the casualties of the financial crisis. In this environment, small business owners and merchants are finding it important to understand the potential for using business cash advance also known as credit card cash advance as a substitute for small business loans and other traditional sources of financing such as sales financing, factoring services, equipment leasing etc. Not surprisingly, business cash advance has been growing as other financing alternatives have become scarce.

Business cash advance involves selling credit card receivables at a discount, as a means of getting cash in exchange for those receivables more quickly. In this sense, it is an exchange of money for time–the business does not get the full amount of the receivables, but it gets an immediate cash infusion that can be used as working capital or for business expansion. Business cash advance can make the difference for businesses that are booking healthy credit card receipts, but won’t get paid on credit card sales for several weeks. When the business has to make payroll and pay suppliers week-to-week in order to keep making those sales, some form of short-term credit is required. Merchant cash advance can be the answer.

Three Ways to Get More out of Business Cash Advance

Not surprisingly, cash advance for small business is a growing industry. The business grew by 50 percent in 2009, reaching a total value of $700 million. Not only are more businesses using merchant cash advance, but managers are finding ways to get more out of this funding source. The following are three examples of how a small business could get more and better use out of credit card cash advance:

1. Manage cash flow timing. Where there is a mismatch in timing between the cost of doing business and the receipt of revenues from that business, credit card business cash advance can bring the two more in synch.
2. Use opportunity cost to measure payback. While small business cash advance may be more expensive than a typical small business loan, the latter is not a valid benchmark when commercial loans aren’t available. Instead, managers should use opportunity cost to compare with the cost of a merchant cash advance.
3. Shop around. Even though business cash advance can be expensive, small business owners and merchants can minimize the cost by using internet resources to shop around for competitive terms.

One of the advantages a small business has is flexibility. By turning to business cash advance in the absence of other financing sources such as government grants and small business loans, small business owners and merchants can use that flexibility to weather the great recession.

Tags: Business Cash Advance, Small Business Loans

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