Navigating the tricky terrain of getting working capital can be as confusing as it is frustrating. But it all really starts with finding the right cash advance provider. The problem is that not all cash advance providers are created equally, so asking the right questions is key to deciding who to choose as your lender.

You need to make sure that the company you choose has your business’s best interest at heart and that they won’t lock you into an unsustainable cycle that your business won’t handle. To help you navigate this process, we’ve laid out the five key questions you should ask your prospective cash advance company.

1. What happens if I default on my loan?

Nobody wants to think this way, but it’s important that you understand what will happen should you experience hiccups (and need to miss a couple of repayments) or worst case, if your business fails. One important difference between a business loan and cash advance lies in the personal guarantee. For business loans, the personal guarantee normally holds you liable for the amount owed regardless of the success of your business. But with a cash advance, the personal guarantee is only a guarantee of performance; which means if you stand by your contract and your business fails, the cash advance company legally can’t call on the outstanding balance. This is a key feature of a cash advance, and the “better” cash advance providers will fully respect these contract terms.


2. What happens if my business falls under pressure?

A cash advance provider charges a pre-agreed fixed cost for funding. So if your turnover drops while you are in a repayment cycle you won’t get penalised with increased repayment costs. This makes a cash advance ideal for seasonal businesses where turnover fluctuates month to month. The idea is that whatever you are quoted when you are first funded, is the total amount you will ever payback for that particular cash advance. With interest rate-based finance this amount could continue to increase the longer it takes to pay back the initial amount.

3. How do I understand whether I am using the funds properly?

A merchant cash advance is a funding solution that is best used for business-enhancing and growth activities. So if your turnover increases and/or your expenses decrease (through using your merchant cash advance) that’s a pretty good indication that you are using it correctly.

A few good uses of the product are:

  • Bulk stock purchases
  • Refurbishing an existing store
  • Opening an additional store
  • Upgrading equipment or technology to promote speed and efficiency
  • Adding additional revenue streams (such as a new product line or e-commerce platform)

On the flip side of things, a cash advance should not be used to plug holes or service other debt. These sorts of decisions will only lead to loss in revenue and are ultimately a missed opportunity.

4. What are my options if I need an early re-advance?

Each lender works differently, but generally there are two ways to get additional funding after taking a cash advance. One is called a ‘top up’ which is when you have been approved for a higher advance but only used a portion of it. Within three months of taking out the first amount you can then access the remaining funding with no fuss. The second way is called a ‘re-advance’. Here you qualify for after paying off 70% of the original funding value. Some customers come across additional growth opportunities before the full repayment period is up and request it sooner. A good merchant cash advance provider will always consider early re-advances on a case-by-case basis, looking at how much the business has grown and how efficient their payments have been.

5. 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 comes down on a daily basis. Alternatively, if you know that you want to settle early when you initially take the advance your cash advance provider will tell you what your discount will be upfront.

So there you have it: Five key questions you should ask when selecting your cash advance provider. Below each one, we have offered potential answers, but if you have any other questions, we would be happy to answer those too.

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