The pandemic hit the UK’s economy at full throttle, and the business industry struggled to stay afloat. Many businesses faced major challenges, and funding became a huge problem. Customers became more frugal with their money, and the economy took a nosedive. Sometimes businesses need a little helping hand to get back on their feet, especially after an extremely difficult year.
A business cash advance (BCA) is a lending option based on a company’s future revenue. Typically, business loans offer a fixed monthly repayment scheme. A business cash advance works like a business loan – only with a flexible approach to repayments. The total cost of finance is agreed upon upfront, and repayments are taken from your revenue. The repayments are proportional – when your revenue increases, your repayments increase too. The cost of finance does not change.
You can use a BCA to invest in new equipment to improve the efficiency and productivity of your business. You may need modern machinery to attract clients, investors and customers. You can also use it for stock, growth purposes and to buy new business premises. Businesses need money to grow and expand in the industry. Funding allows companies to invest in new products, hire new team members and expand into different areas. You can use your BCA to recover from the pandemic, and hopefully, build an even more successful company.
Of course, there are pros and cons to business cash advances. The process is fast, simple and accessible for most business owners. Credit history isn’t a major factor in the approval process either – so it’s more accessible for those with lower credit scores. Your eligibility is based on company turnover, and less attention is paid to whether you have missed a repayment or not. Although, it is still important to improve your company credit score for the future. No collateral is required for a BCA as it is an unsecured form of financing. You don’t have to submit any assets as collateral – which is good news for those with few assets to offer.
However, BCA’s can only be accessed by those who have used credit card payments for at least the last two years. Your repayments are paid directly from credit card sales and will often be paid on a daily or weekly basis. This is not a monthly fee you can cover with other forms of funding. It’s also one of the most expensive ways to finance a small business and can be unsustainable for smaller companies.
Business cash advances are a great option for small businesses that need urgent funding. However, you should take into consideration the added cost and repayment system before accepting a BCA.