Unexpected costs: It can take a while to apply for certain loans and even longer to get approved

A cash advance could let a small business owner deal with emergencies immediately, like an unforeseen equipment repair, a fine, or flood damage.

Catalog: Small businesses might use a cash advance to purchase new equipment or materials and then repay that borrowed money with revenue from https://paydayloansohio.net/cities/findlay/ their sales.

Inconsistent revenue: When your business is experiencing a low-revenue period or lost work, cash advances can help cover ongoing costs.

Common Types of Cash Advances

Cash advances come in various formats. The three types you may encounter are credit card cash advances, payday loans, and merchant or business cash advances.

Credit Card Cash Advances

A credit card cash advance is a cash loan typically issued to an individual through their credit card issuer. Credit card advances are designed to be helpful when you have an expense you can’t ignore but can’t be paid by your credit card-for instance, some retailers don’t accept credit cards, but you may still need their products.

If you have a credit card that offers cash advances, you can visit an ATM, enter your PIN, and withdraw your selected amount, up to the limit your card allows for cash advances. Alternatively, you could request a cash advance check directly from your credit card company.

Bear in mind that your credit limit and cash advance limit e. For instance, if your overall credit limit is $10,000, you probably can’t withdraw $10,000 as cash. In fact, your cash advance limit could only be a couple hundred dollars.

Pros and Cons of Credit Card Cash Advances

Convenience: Unlike other financing options, which often require applications and approval time, this is a speedy way to access cash. All you have to do is visit a local ATM.

Available in emergencies: If you don’t have funds in your bank account and a needed service won’t accept a credit card, this may be the only way to pay for a sudden expense.

Cost: Credit card advances often require a fee and a higher interest rate. Fees generally range from 2% to 5% of the amount, though it may be a flat rate. There might also be a higher interest rate for advances than your card’s usual rate – sometimes as much as 10% more than what you normally pay.

Credit score implications: Credit card cash advances can hurt your credit because high credit utilization can negatively impact your score.

Payday Loans

Essentially, payday loans are short-term loans that let you borrow against your future income. The lenders offer quick application processes and approval turnaround. Loan amounts usually range between $500 and $1,000, but the terms are generally very short and costly.

Whether a payday loan is considered a cash advance depends on who you ask; the two are similar, but the interest and fees for payday loans are often much higher.

Pros and Cons of Payday Loans

Convenience: The biggest draw for payday loans is their convenience. They offer money in hand, and you don’t have to fill out much paperwork or wait for long to get it. You may even be able to get one online if you live in the right area.

Hefty costs: The costs for payday loans are very high. They require you to pay a significant amount of interest within a limited time, which could be anywhere from several days to a few months. States can set their own rules, to the point where some states have no interest rate caps. In California, the average APR for payday loans is 372%!