Posted At: Apr 11, 2024 - 1,544 Views
A cash advance is a way to access money without applying for a formal loan.
What Is a Cash Advance?
Essentially, a cash advance is a short-term loan that often involves an interest rate and a fee, depending on various factors such as credit and repayment capability.
The fee and interest you pay for a cash advance are usually directly related to the amount of your withdrawal and the duration of your payment. Therefore, cash advances are considered costly, and when used, they should be regarded as a short-term solution. Since issuers also limit the maximum amount of cash you can access.
There are various types of Cash Advances such as:
Credit Card Cash Advances
A credit card cash advance is a feature offered by many credit cards. Essentially, it's a short-term loan where the borrower can receive cash or a cash equivalent, usually up to 20% or 30% of the available credit limit on the card. Some cards may allow you to withdraw 50% or more of your available credit limit.
Merchant Cash Advances
Merchant cash advances (MCA) extend funds to small business owners based on past sales and a projection of future sales. If your business generates a decent amount of daily credit card and debit card sales, you're likely to qualify and have the funds within days. With a simple application, you can have the funds in hand within a few days. But for this, it is recommended to ally with a service provider known for excellent service, such as WhiteStone Fund, regardless of whether your credit is not the best. Their focus is to help merchants overcome financial challenges quickly and efficiently, and without hidden fees. Click here!
Payday Loans
Payday loans provide you access to future payment from your employer. In most cases, the payday lender requires proof of income such as a previous pay stub. Funds can be accessed at a physical location or online. However, payday loans can be extremely predatory and should be avoided.
How a Cash Advance Works
The process varies depending on the type of cash advance and the lender:
Credit Card Cash Advances
You can access a cash advance at an ATM, your card's financial institution, or by writing a convenience check, also known as an access check, periodically mailed in your monthly credit card statement.
Merchants may treat specific credit card usage as a cash advance, too. Some transactions may be processed as a cash advance, including:
Peer-to-peer money transfers through apps.
Initial deposits when opening a bank account.
Overdraft protection when a credit card secures a checking or savings account.
Foreign currency, traveler’s checks, or money orders.
Gold or virtual currencies.
Wire transfers.
Lottery tickets, casino chips, and gambling wagers.
Some gift cards and prepaid cards.
You will pay compounding interest on the advance from the first day the cash is extended, plus an upfront service fee. Additionally, most credit card companies only make a portion of your revolving credit line available for use as a cash advance. This amount is often printed on your monthly statement or visible when you log into your account online.
Merchant Cash Advance
Merchant cash advances are not usually extended by your credit card provider, but are offered in partnership with the payment processor for your credit and debit card sales. Unlike a typical loan, merchant cash advances do not charge an APR. Instead, your repayment is based on a factor of your daily sales. This means that you will make a daily repayment based upon your sales at a factor of 1.1 to 1.5.
If you borrow $15,000 at a factor of 1.3, you will need to repay $19,500 plus any origination fees.
This factor means that your daily payment may increase if your sales are high and may further reduce your business cash flow. Likewise, the payments are intended to fall if daily sales drop. However, the FTC received complaints during the pandemic that not all MCA processors conducted the "true-ups" promised to reduce payment when sales dropped.
Payday Loans
Payday loans are intended to be short-term, small amount loans secured by a deferred presentment transaction. The borrower provides a post-dated personal check or permission for a future electronic withdrawal. Even though they are called payday loans, the funds can also be secured by other income such as a pension or Social Security.
How to Apply for a Loan with WhiteStone Fund Corp.
If your business is small or medium-sized, has been open for more than 6 months, and has monthly net income of at least $7,500, follow these steps:
- Complete our online pre-qualification form.
- Speak with one of our experts.
- Receive an offer in less than 48 hours.
- If you accept, get funded the same day!
It's that simple. And remember, having bad credit is not a limitation. For more information on the One Park Financial application process and minimum requirements, check out our page: How It Works | Funding Process and Requirements.
Disclaimer: The content of this post is for informational purposes only. It is not intended to provide nor should it be considered as tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisors before making any transactions.
