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Many business owners are struggling to find working capital. Once readily accessible to most businesses, small business loans are harder and harder to come by. Thankfully, business cash advance providers have stepped up to fill the gap. Some business owners are skeptical, and hesitant to be open to the idea, but there are many benefits to the business cash advance program. While they both certainly have strengths and weaknesses, in this article, we hope to clearly explain how they work and what their benefits can be over traditional small business loans.

Who Qualifies?

Business cash advances are very easy to qualify for. Since they’re based on revenue from credit card processing, the biggest qualifying factor is whether or not you accept credit cards as a form of payment, and how often you have sales to run. This makes most retail businesses and certain service-based businesses excellent candidates because they usually accept credit cards and the cardholders are physically present at the point of sale. Unfortunately, most home-based and internet-based businesses don’t qualify. You have to process at least $5,000 per month in credit card sales, and underwriting also likes to see that you settle transactions at least 10 – 12 times every month. Personal credit is not a big factor; the only stipulation ist that the owner’s FICO score is above 500 and there are no open bankruptcies.

Application Process

The application process is very simple. A one page application is filled out and signed by the business owner. The application contains basic administrative data about the business and the owner(s) and usually also lists a few trade references. The signature authorizes the cash advance provider to obtain a copies of the applicant’s business and personal credit reports. Pre-approvals can be given within 24 hours of the application being submitted along with the business’s 4 most recent credit card processing statements. At lease one, if not all, of the statements must be complete (i.e. all pages submitted) so underwriting can review them completely, looking at credit card processing activity, transaction count, average ticket size, batch frequency and rate analysis. The pre-approval will consist of a few different funding options based on the statements you submitted, along with a list of additional paperwork you’ll need to submit prior to approval. This can vary slightly on a case by case basis, but here’s a complete list of paperwork that’s generally required:

• Signed, completed application.
• 4 most recent credit card processing statements. Seasonal businesses may have to submit more so underwriting can fully understand your seasonality.
• 3 most recent business bank statements. This should be the account where your credit card deposits go. If that account sweeps to another operating account, those statements may also be required.
• Business lease. Underwriting will need the pages listing the parties to the lease, the term and expiration date, the property address and the signatures.
• Proof of ownership. This can be a business licence or articles of organization.
• Driver’s license or other state issued identification card.
• Voided check.
• Deals over a certain size may require year-to-date financial statements or the most recent tax returns.

Three Different Programs

Besides the main business cash advance program, there are two additional programs available:

• The Starter Program – The starter program is designed for those individuals and businesses who don’t qualify for the traditional program. The two most common reasons someone would be declined for the traditional program is because of poor personal credit or because they process less than $5,000 per month. For the starter program, underwriting still requires that there are no open bankruptcies and that you settle transactions at least 10 – 12 times per month.
• The Gold or Platinum Programs – For a long time, individuals and businesses with stellar credit and healthy financials have turned down cash advance offers. The cost of the traditional program was too great for many of them, and there was little that could be done. Providers have developed Gold and Platinum programs for these kinds of businesses. The cost can be less than half compared to the traditional program, and they are often underwritten at 12 – 18 month deals, which is typically a longer term than the traditional program.

Between these two relatively recent developments in the industry, business cash advance providers have been able to boast approval ratings upwards of 90%, and at the same time gain market share among established, credit worthy businesses who normally would only consider traditional small business loans.

Cost

Business cash advances, admittedly, are most costly than traditional business loans. The main difference is that business loans accrue interest over time. The longer you take to pay them off, the more expensive they become. Business cash advances have a fixed cost. The transaction that takes place is actually the purchase and sale of your business’s future credit card receivables. The business cash advance provider decides how much of your future receivables they are interested in purchasing (the “purchased amount” or total payback amount), and offer to purchase them at a discount rate, usually somewhere between 15% and 30%. How much they offer to purchase them for is called the “purchase price”. It’s also known as the “advance amount”. At a 15% discount rate, a cash advance could purchase $10,000 by advancing you $8,500. No matter how long you take to pay it back, it will never cost you more than $10,000. The discount rate offered depends on a number of things, including time in business, credit score, process history, etc.

Payback

Since the transaction involved in a business cash advance is the purchase of future credit card receivables, they are paid back as you process credit cards. A small percentage of each credit card transaction gets paid to the cash advance provider to pay down the advance. This percentage is fixed, so it remains the same through the course of the advance, and it’s agreed upon prior to funding. The result is an extremely flexible payback schedule. If you have a bad month, you might struggle to make the payment on your traditional business loan, but with a business cash advance, you’ll just end up paying back less that month. You never have to worry about missing a payment, and the cash advance provider only gets paid when you get paid. Most business owners find comfort in this method of payback.

Events of Default

Defaulting on a business loan is serious, since most of them are secured or personally guaranteed. If you miss that monthly payment, the bank can put you in a tricky situation. If you put up any collateral, the bank has the right to take that asset and liquidate it, below market value if they have to, in order to reimburse themselves for the principal outstanding. If you signed personally for the loan, don’t count on “limited liability” to protect yourself. The bank will have the right to take any of your personal assets including your home or your car.

For most business owners, this is the true beauty of the business cash advance. The fact that they are unsecured and never personally guaranteed justifies the higher cost. If you find yourself in the position where you can’t pay it back because you have to close the doors, the business cash advance provider is out of luck. As long as you didn’t provide any false or misleading information during the application process, there can be no recourse. Simply put, the asset in the purchase and sale agreement (your future credit card processing revenue) doesn’t exist anymore.

Conclusion

These are only a few of the benefits of the business cash advance program.

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Do you want your business to succeed? Of course you do. Every business looking to succeed would be wise to take a little time to create a business plan. This important document will help you in any stage of business from start up to expansion to financing a new product or idea. Writing a business plan can help your business to increase its chances of success which is especially helpful during these difficult financial times.

Writing a business plan will be a lot of work. However, you will find that the process is not that difficult once you get started. One of the most difficult parts of writing a business plan is just getting started. Of course, having some tips and guidelines to follow can be especially useful. Here are some ideas to help you as you write your business plan.

What Do I Need To Include?

Your business plan needs to demonstrate that you know what you are doing and that you understand your business. Generally this knowledge and information is broken into distinct sections. This helps you to keep your business plan organized and easy to write. Lets look at each of the nine sections in a little more depth.

Executive Summary

Since your executive summary leads your business plan, it is important that you carefully construct this first section. In fact, the executive summary is so important that it is placed directly after the title page, even before the table of contents. Many find that writing this key section works best when completed last. The executive summary serves as a synopsis of all the sections of the business plan. If you wait until the end, you will be better able to write a cohesive and complete executive summary.

Within the executive summary, you will include your company mission statement. This mission statement should not be long, probably about four sentences in length, but should be carefully instructed. Many say that the mission statement is the most important part of the overall business plan.

Since your mission statement is only a few pages long, your executive summary will allow you to further expand upon key points mentioned in the mission statement. Consider including your business history, biographies of key players, an overview of the business including locations, employees and available products and services. You can also discuss goals and future plans. Use this section to really draw in the readers.

Many find that a bulleted format is ideal for this section. This section should be easy to read and scan so that potential investors can easily get an overview of your business. The biggest mistake that many make is including too much information. Make sure that your information only encompasses one or two pages.

Market Analysis

In the second section of your business plan, you will cover the analysis of your specific market. During this section you will showcase your business’ ability to succeed. Success is dependent upon accurate and complete market analysis. This section will show that you have done your research. Use this section to sell your business to potential investors. Show them how your business can succeed.

Thoroughly cover your business’ market. Talk about your industry and use specific details to support your statements. Details like industry size, growth rate and customer group will help you showcase your business. Include as many details as possible. Do not fill this section with generalized information. Make sure it is industry and business specific.

In this section you should also include the results of any market research studied that your company has completed. Also briefly discuss your competitors and their strengths and weaknesses. You may want to cover how your services will appeal to customers more than your competitors.

Detailed Description of the Company

After showcasing how your business can succeed in your specific market, it is time to illustrate a comprehensive picture of your business. Cover in detail your business including information regarding the type of business, the target market and how you can meet their needs and distinguishing factors that make your business unique.

Remember that each section in your business plan will overlap. This means that you may cover information more than once as you move from section to section. This is okay. Your business plan may be considered as a whole or may be viewed as individual sections. This means that each section must include all key information. Don’t neglect including important information simply because you feel it has been covered in other sections.

Organization Structure/Management

This section will detail specific information regarding your staff and executive positions. Cover how your company will divide work. Who will do what jobs? How does your business management structure work? Include biographies of key business personnel including owners, board of directors, management and other company executives. You should also discuss employee compensation and benefits.

In this section you will demonstrate your company’s ability to succeed through your management plan. Additionally you will help investors to realize your company’s potential as far as an employer is concerned. Investors know that good, long lasting employees can help your business to succeed. Therefore they are looking for strong and effective management as well as the ability to retain and inspire employees.

Marketing

How are you going to get the word out about your business? In this section, you will detail your plan. You can also discuss how your marketing strategy will lead to growth. Be complete and detailed in your plan.

Product and Service Offerings

This section may sound like a simple list of your available products or services. While this is one aspect, there is other information that needs to be included in this section. For each service detail the specific benefits of the products and services you offer. Discuss the advantages you have over your competitors with a specific focus on products and services. Also discuss how you can expand your product and services offering as time goes on.

Funding Request/Requirements

A business plan is often a tool used to help your business secure needed funding. If this is the case, make sure you include a funding request in your business plan. Be specific. Remember that potential investors need a thorough understanding of your requests so that they can make a decision about whether or not to approve your request. Be sure that you include the following information:

• What you need immediately in terms of funding
• Funding needs over the next several years
• How the money will be spent (be specific)
• Do you want loans, investors, partners, etc?
• How you plan to repay the loan

Financial Statement

This section is often carefully considered by potential investors. It helps investors to determine the financial solvency of your company. You will not just discuss your current financial state. In this section you will cover your financial past, your current state and your goals for the future. Include income statements over the last several years, balance sheets (both prior and projected), projections and available collateral.

It can be especially effective to include charts and graphs to better illustrate your financial plan. Including graphs and charts will help investors see the growth potential for your business and will make them more likely to approve your loan. Remember that the amount of funding desired must be in accordance with your financial projections. Investors want a return on their investment and will not invest more that they will get back.

Other Information

At this point you may feel that you have covered everything. However, there is probably other information that you want to include that couldn’t fit into one of the previous sections. This is the place where you will include it. You may want to list specific details in this section and then reference them in the other sections. This will keep your business plan from being cluttered with extensive details and information. Many business plans include items such as: credit reports, letters of recommendation, licensing and patent information, legal documentation, executive resumes and a list of business associates including your lawyer, accountant and business consultant.

Getting Started

You may be feeling overwhelmed at this point by the wealth of information you need to include in your business plan. Make sure you use an easy to read format. This means that you should definitely utilize headings, bullets and lists. Focus your writing to your audience. If the purpose of the business plan is getting a business loan, make sure your writing conveys this message.

How Long Should My Business Plan Be?

Try to keep your business plan between 20 and 40 pages. This may sound like an unachievable task. However, much of the finished length will be encompassed by formatting. Using bullet points, lists, charts and pictures will not only make your business plan more effective, they will help your business plan to be longer as well.

As you create your business plan, tailor your presentation to a busy professional. Assume that they will only spend 10-20 minutes perusing your plan. Make sure that you thoroughly sell your idea, needs and business during this brief time period. Further attract your audience using clear formatting, easy to read content, well thought out wording and correct spelling and grammar.

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