Some businesses cringe at the idea of a cash advance, and rightly so. Interest rates can top 45 percent – leaps and bounds above traditional bank loans or equipment leases.
But there are certain times when a cash advance is a good business decision. They’re certainly not a means of keeping your business afloat, but when used sparingly, they can be an effective tool to help you grow and prosper. Sometimes, the benefits of having money now far outweigh the long-term costs of a cash advance.
1. The Bank Won’t Lend You Money
Securing a bank loan was never an easy process, but in today’s economy it can be downright impossible. Banks are hesitant to lend to young businesses or those they deem risky – particularly restaurants or retail shops.
If your finances are solid but you need a short-term infusion of capital, a cash advance can fill in the gaps. With far less stringent lending standards, a cash advance can provide the funding needed to help your business succeed.
2. You Need New Inventory – Yesterday
Products are flying off the shelves and you suddenly realize that you’ve underestimated your inventory needs. That’s a good thing, right? Well, not if you don’t have the cash to replenish the items necessary to keep your business running.
When you can’t afford to wait for a bank loan, a cash advance allows you to quickly stock up on inventory. Seasonal businesses, too, often turn to cash advances to buy new inventory during slow times. When the busy season starts, they’re easily able to repay the loan.
3. An Unexpected Bill Pops Up
Maybe you’re in the middle of the slow season when a whopping tax bill shows up at your front door. You’ll have the cash in a couple months, but you don’t have it now. A cash advance can fill in the gap here, too.
4. You Get an Offer You Can’t Refuse
Occasionally, suppliers offer a sale or liquidation special with discounts that are too good to refuse. But because you hadn’t planned on ordering new inventory, the money isn’t in the budget. If the deal is good enough, it may be worth the high interest rates that come with a cash advance.
5. You’re Looking to Grow the Business
Business loans are designed to turn borrowed cash into new revenue streams. Sometimes, you just need a quick infusion of capital to take your business to the next level.
Cash advances can be used to pump capital into that growth initiative you’ve long been considering. Maybe it’s a new marketing or advertising campaign designed to increase sales. Just be sure the initiative you choose is one that’s likely to succeed. Cash advances are not designed to be used on a gamble.
Samantha Woods is a loan expert and blogger for online financial publications.