Things to Remember Before Applying for A Business Cash Advance

Published: 31st March 2011
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In these times of economic crisis, keeping a business on solid ground is difficult. Regular assessment of cash flow must be done to ensure that the business is earning enough and continues to pursue its goal. Because of the rapid inflation of commodity prices, market demand has reduced significantly. This has caused many companiesí revenues to plummet. As a result, some have already closed while others remain struggling.

Another option is left for those who want their companies to survive. There are financial institutions offering lending programs to companies languishing in near-bankruptcy. Their mission is to rescue small and large businesses from an immediate slump by lending money according to their need or request. The principle applied is the same with basic loans wherein the two parties enter into a contract that contains provisions about interest rates and payment schedules.

Unlike large-scale business loans, a business cash advance involves a limited amount. This is the reason why it is best for small businesses. When entering into a contract for a business loan, there are a few things that debtors must keep in mind to avoid risks. Like any other loan, a business loan has a definite payment method, interest rate and timeframe. Each element is important because it can determine whether the debtor can successfully payback his debt or not.

Before the debtor signs the contract for a business or merchant cash advance, he or she must make sure the payment method is clearly explained. Some lending companies use ostentatious terminologies that can confuse the debtor about the difference between over-the-counter and automatic payments. Normally, payment is automatically deducted or transferred from the account of the borrower.

The debtor must also be aware that the interest rates for this kind of loan can be tricky. Although legal in the sense, it is important to know how the interest rate in a business or merchant cash advance is being compounded. It can significantly alter the amount of money the borrower has to repay.

For example, a 30% interest rate compounded semi-annually is higher by 0.32% than the effective annual rate. It means that beyond the interest rate, the borrower applying for the business or merchant cash advance pays extra. When a company deals with 6-7 figure amounts, 0.32% is quite significant and must not be neglected.

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