Most business owners who are looking for business loans often think that a cash advance is the best and easiest way to get cash for financing business activities. However, before you think of applying for this type of loan, you should take time to familiarize yourself with the costs of this type of loan, the repayment period, and the requirements for approval.
As per the cash advance definition, this is a short-term loan that is issued by the issuer of your credit card. Anytime you borrow this money, you will be borrowing against the line of credit on your card. Once approved, this money can be available to you in person, from an ATM, or via a convenience check.
Cash advance fees and terms
While cash advances are a quick way of getting money to run different functions of your business, the downside is that the cost of this loan is quite high. This is why you need to review the terms of your cash advance before you take it so that you will know how much you will be paying for the loan. Some of the fees that you may incur include:
Cash advance APR: With cash advances, a separate and high interest is likely to be incurred. The exact rate of interest varies from one lender to another.
Cash advance fee: This fee is charged by the issuer of your card, and it is mostly in the range of 3% to 5% of the sum that you are applying for.
Bank or ATM fee: If you are visiting a bank or if you will be getting an advance from an ATM, expect to be charged some money for the service.
There is no grace period: Remember that you are charged interest from the first day after you withdraw your cash advance. There is no grace period that is offered, so you should factor in that cost.
Separate credit limit: this is usually a percentage of your total credit limit. Different lenders offer different credit limits, so you should check how much you qualify for. For some people, it’s possible for this to be a few hundred dollars.
What are the best cash advance alternatives?
Cash advances may appear as a good source for business financing, but if you are not careful, debt may accumulate quickly. This is why you should consider many factors just to be sure that this line of credit is best for you. Among the best alternatives are:
Loans from family: This is arguably the best and the first line of credit that you need to consider. It may be uncomfortable for you, but if you can get it, it can save you some money. However, ensure that you create a godly repayment plan and honor it to maintain your relationship.
Apply for a personal loan: More often, a personal loan offers better terms especially if you have good credit. The interest rate is much lower than the APR which you would be charged by issuers of credit cards.