Is the Cash Advance Industry Hurting or Helping Small Businesses?

One of the ways that many small businesses achieve their goals is through the business cash advance industry. There are approximately 28 million small businesses in the United States, and new businesses open up each year. Opening a successful small business and keeping it in operation for over five years is no easy feat. One of the ways that many small businesses achieve their goals is through the cash advance industry. However, not everyone in the business world is behind this form of financing. There are arguments to be made for each side, but there is little wonder as to why so many business turn to cash advances.

The Business Cash Advance Industry Helps Provide Capital to Startup Companies

There is a strong case to be made that the cash advance industry helps many small businesses to get off the ground and begin operations in earnest. Even if a new company has a solid business plan, a great product or service and a share of the market, there are lean times that can drastically impact business’s ability to meet its demands and invest in future growth.

Some of the ways that a cash advance could help a startup company are:


  • Accounting for Seasonal Business: Many businesses are designed to peak during a specific season. An ice-cream shop, for instance, might make substantial profits but require a cash advance to handle the expenses of operation during a slower period.


  • Financing Large Orders: If a business receives a much larger order than usual, it can be both a blessing and a curse. If the client pays only part of the expense upfront, a business might require a cash advance to buy materials and cover labor costs until the final product is sold and the sum of the profits are put back into the business.


  • Drive Expansion: A successful small business might see the potential for growth and expansion, but opening a second location can be expensive. If the business model has already been proven as a successful once, then a cash advance could seem like an attractive option to finance expansion.


Small Businesses Without Collateral Have to Seek Out Alternative Financing

According to CNNMoney, many small businesses are ensnared in a collateral crisis. Without tangible assets like property, companies may not be able to get the financing they need. The more traditional forms of financing available to small businesses have largely disappeared in the wake of the most recent economic crisis, leading these small businesses to look elsewhere. A cash advance appeals to many businesses owners because it allows them to handle immediate expenses without the need for substantial collateral. Establishments like can be a convenient way for businesses to quickly receive a cash advance and avoid bankruptcy, closure or a missed order.

The Cash Advance Industry Has Potential to Pull Business Owners Further into Debt

While there are clearly some major advantages that cash advances offer small businesses, some claim that these loans are financially difficult to recover from. As Forbes explains, “Cash advances are not personally guaranteed, nor are they tied to any assets of the business, making them high-risk loans for the lender.” Because the lender takes on extra risk when offering cash advances to borrowers, interest rates are typically higher than those offered through more traditional bank loans. If a small business requests a large cash advance and can’t repay it, the next step might be taking out another cash advance. Unfortunately, this misuse of loans can create a cycle of debt that some small businesses may not easily be able escape from. Rather than conceding a loss and devising up a new strategy, a business owner may continually seek out cash advances, staying just ahead of bills and debts month after month.

When used irresponsibly, the cash advance industry can create more debt for businesses. However, in many situations, a cash advance can make or break a business’s future, so it is easy to see why they are appealing. Personal Money Store has more information about securing cash advances for personal or small business needs.

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