Tag: Cash

The 5 main causes of cash flow problems, cash flow business.#Cash #flow #business


The 5 main causes of cash flow problems

Cash flow business

Anywhere in the world, whether you are in Australia, UK, US, Canada, or elsewhere, the causes of cash flow problems are the same!

CASH IS KING

  • The ability to generate positive cash flow year in year out is essential for a business to be viable in the long term.
  • Surplus cash flow lubricates growth of a business.
  • It is impossible to successfully grow a business unless it is both profitable AND generates surplus cash flow on a sustainable basis.
  • Without strong, positive cash flow a business will never thrive and grow.
  • Inadequate cash flow is a symptom of management problems in a business, NOT the cause.

Evidence of Cash Flow Problems

  • Late payment or non payment of supplier invoices, direct debits being dishonoured, late payment of taxes and employee superannuation, even worse being late payment of wages to staff.
  • More extreme evidence of cash flow problems is legal action against your company by suppliers or the tax office.
  • If these problems sound familiar to you and your business, it is time for you to take immediate action to address your cash flow problems.
  • You are stressed and it is affecting your family as well.

In this article, we take a look at the 5 main causes of cash flow problems in a business.

Knowing these dangers will help you develop effective cash flow management and maintain a healthy business cash flow.

Cause 1 – Declining Sales and/or Declining Gross Profit Margins

a) Declining Sales

  • Declining sales have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
  • This typically occurs when economic conditions deteriorate, there is an increase in competition from global competitors, new competitors enter your market, or your industry declines.
  • As sales decline your overheads will probably remain unchanged so net profit decreases rapidly.
  • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining sales.

b) Declining Gross Profit Margins

  • Declining gross profit margins have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
  • Typically occurs when there is pressure on sales.
  • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining gross profit margins.

Cause 2 – Your Business Is Unprofitable

  • Simply put, you are spending more than you are charging to provide your customers with goods or services. For example for every $1,000 or 1,000 you charge your customer you are spending $1,050 or 1,050! That is for every $1,000,000 or 1,000,000 you earn you are spending $1,050,000 or 1,050,000!
  • Inevitably your losses will accumulate to the point of having to borrow more money just to stay in business. But eventually you will come to the point where it is neither wise nor possible to borrow more money and you will have to sell your business, close it down, liquidate it, or someone else will liquidate it for you, for example the tax office.
  • A much better solution is to take immediate action to restructure your business to generate strong and sustainable profits, this will probably require a very experienced business turnaround specialist to guide you through this process.

Main causes of lack of profitability include:

  • A flawed business model.
  • An underperforming business, either your sales marketing and/or operations are not working like clockwork.
  • Lack of understanding of financial statements.
  • Lack of accurate and timely financial statements.
  • Lack of KPI s (Key Performance Indicators) and strict monitoring of them
  • Low gross profit margins due to high direct costs and/or not charging enough for your products/services and/or extreme competitive industry pressures.
  • Poor performance and lack of productivity of staff.
  • Poor processes, many errors/defects.
  • Poor stock purchasing and management.
  • Excessive overheads.
  • Excessive interest and/or vehicle and equipment finance commitments.
  • Poor credit approval of customers and poor debtor collection management practices resulting in high bad debts experience.
  • Undisciplined spending.

Cause 3 – You Have a Natural Negative Cash Flow Business Model

  1. You sell on credit terms, 30, 60, or even 90 day terms, but you have to pay your payroll, rent, overheads weeks if not months before you are paid by your customers. And your payment terms with your suppliers are shorter than the payment terms you have given your customers.
  2. You carry imported stock which you have paid for weeks or months before it lands in your warehouse.
  3. You are paid by way of progress claims for which you also provide credit so you receive payment long after you have paid your direct factory expenses or subcontractors and materials expenses. Furthermore, retention payments are withheld by your head contractors or by your customer.

There are ways to address every one of these circumstances which involve redesigning your business model and also using appropriate means of financing, most of which are still available, even if you are already in financial distress.

Cause 4 – Excessive Debt and Capital Expenditure and/or Excessive Personal Drawings/Benefits

  • High repayments due to excessive debt and/or repayment of loans over too short a period. This especially applies to vehicle and equipment loans and lease repayments which are typically structured over relatively short terms with low or nil balloon or residual values.
  • Capital expenditure funded out of cash flow instead of being financed over the useful life of the asset which puts pressure on cash flow.
  • Funding purchase of personal property assets or the repayments on these properties far beyond the capacity of your business to sustain these payments as well as meeting the ongoing payment of all business expenses within normal trading terms including taxes and superannuation.
  • Excessive living and lifestyle expenses.

Cause 5 – Poor Stock or Poor Credit and Debtor Management

  • Poor stock management, such as carrying stock that doesn t sell through, carrying excessive levels of stock, not clearing discontinued or obsolete stock, poor demand planning, undisciplined purchasing habits, or a poor stock management system to name a few.
  • Poor credit management, that is no or poor credit approval processes before providing customers with credit which will sooner or later result in bad debt write offs and in the worst cases will result in failure of the business.
  • Poor debtor management which includes lack of disciplined collection of debts due by customers, allowing continued credit when customers have not paid their bills within company credit terms, and lack of regular reconciling of debtors accounts.

Some Final Words

  • Disciplined cash flow forecasting and management is critical to your business.
  • If you are experiencing some of the above issues in your business you need to address them urgently. Unless you can address these problems immediately you may be wise to engage the services of a very experienced business turnaround specialist to help you effectively plan and manage your cash flow and deal with the root causes of your cash flow problems.

Addendum

a) Detailed Analysis of Impact of Declining Sales

  • In the table below, sales are progressively reduced dramatically reducing net profit margin.
  • Note that all figures are presented as cents in the dollar/pence in the pound. Therefore, by way of explanation for normal sales column:

Sales = 100 cents/pence

Cost of Sales = 65 cents/pence

Gross Profit = 35 cents/pence


Tags : , ,

Cash Flow Story, cash flow business.#Cash #flow #business


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    Cash Flow Story What are your numbers telling you?

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    Taking less than 10 minutes to setup, this unique web based Scorecard will deliver powerful analysis of your numbers in an easy to understand format. The Scorecard will bring your numbers to life and enable you to measure the financial impact of your decisions in advance.

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    With our business version you can:

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    CFS Advisor

    With our advisor version you can:

    • Guide your clients through their financial story
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    Tags : , ,
  • Cash Flow Story, cash flow business.#Cash #flow #business


    cash flow business

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    Cash flow business Cash flow business

    • Cash flow business

    Cash flow business

  • Cash flow business

    Cash flow business

  • Cash flow business

    Cash flow business

    Cash Flow Story What are your numbers telling you?

    Your Cash Flow Story Scorecard produces an automated financial health check on your business, ensuring everyone looks at your numbers in the same way…. whether you are a business owner/manager an advisor or banker.

    Using powerful processes such as the Power of One, the 4 Chapters and the Big 3 Cash Flow measures the Scorecard will enable you to understand your financial story and improve the performance of your business.

    Taking less than 10 minutes to setup, this unique web based Scorecard will deliver powerful analysis of your numbers in an easy to understand format. The Scorecard will bring your numbers to life and enable you to measure the financial impact of your decisions in advance.

    Cash flow business

    CFS Business

    With our business version you can:

    • See your financial story unfold
    • Gain valuable insight into your cash flow
    • Understand what your business is worth
    • Access your story from anywhere

    Learn more about CFS Business

    Cash flow business

    CFS Advisor

    With our advisor version you can:

    • Guide your clients through their financial story
    • Drive improvements to your client’s performance
    • Go from setup to meaningful analysis in under 10 minutes
    • Discuss the story over a coffee on your tablet/iPad
    • Become a financial story teller

    Learn more about CFS Advisor

    At a glance

    Pay attention to the right areas. Hone in on your critical results

    Easy to use

    Web-based, tablet and ipad ready. Understand your business anywhere!

    Fast Results

    Less than 10 minutes to get started and learn about your business

    Intuitive help

    Read the story to fully understand your story.


    Tags : , ,
  • Home Party Plan Training, Cash Flow Show, cash flow business.#Cash #flow #business


    Home Party Plan Training

    Whether you are a party plan consultant, team leader or corporate executive the Cash Flow Show has the home party plan sales training and direct sales resources that you are looking for!Cash flow business

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    Tags : , ,

    The 5 main causes of cash flow problems, cash flow business.#Cash #flow #business


    The 5 main causes of cash flow problems

    Cash flow business

    Anywhere in the world, whether you are in Australia, UK, US, Canada, or elsewhere, the causes of cash flow problems are the same!

    CASH IS KING

    • The ability to generate positive cash flow year in year out is essential for a business to be viable in the long term.
    • Surplus cash flow lubricates growth of a business.
    • It is impossible to successfully grow a business unless it is both profitable AND generates surplus cash flow on a sustainable basis.
    • Without strong, positive cash flow a business will never thrive and grow.
    • Inadequate cash flow is a symptom of management problems in a business, NOT the cause.

    Evidence of Cash Flow Problems

    • Late payment or non payment of supplier invoices, direct debits being dishonoured, late payment of taxes and employee superannuation, even worse being late payment of wages to staff.
    • More extreme evidence of cash flow problems is legal action against your company by suppliers or the tax office.
    • If these problems sound familiar to you and your business, it is time for you to take immediate action to address your cash flow problems.
    • You are stressed and it is affecting your family as well.

    In this article, we take a look at the 5 main causes of cash flow problems in a business.

    Knowing these dangers will help you develop effective cash flow management and maintain a healthy business cash flow.

    Cause 1 – Declining Sales and/or Declining Gross Profit Margins

    a) Declining Sales

    • Declining sales have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
    • This typically occurs when economic conditions deteriorate, there is an increase in competition from global competitors, new competitors enter your market, or your industry declines.
    • As sales decline your overheads will probably remain unchanged so net profit decreases rapidly.
    • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining sales.

    b) Declining Gross Profit Margins

    • Declining gross profit margins have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
    • Typically occurs when there is pressure on sales.
    • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining gross profit margins.

    Cause 2 – Your Business Is Unprofitable

    • Simply put, you are spending more than you are charging to provide your customers with goods or services. For example for every $1,000 or 1,000 you charge your customer you are spending $1,050 or 1,050! That is for every $1,000,000 or 1,000,000 you earn you are spending $1,050,000 or 1,050,000!
    • Inevitably your losses will accumulate to the point of having to borrow more money just to stay in business. But eventually you will come to the point where it is neither wise nor possible to borrow more money and you will have to sell your business, close it down, liquidate it, or someone else will liquidate it for you, for example the tax office.
    • A much better solution is to take immediate action to restructure your business to generate strong and sustainable profits, this will probably require a very experienced business turnaround specialist to guide you through this process.

    Main causes of lack of profitability include:

    • A flawed business model.
    • An underperforming business, either your sales marketing and/or operations are not working like clockwork.
    • Lack of understanding of financial statements.
    • Lack of accurate and timely financial statements.
    • Lack of KPI s (Key Performance Indicators) and strict monitoring of them
    • Low gross profit margins due to high direct costs and/or not charging enough for your products/services and/or extreme competitive industry pressures.
    • Poor performance and lack of productivity of staff.
    • Poor processes, many errors/defects.
    • Poor stock purchasing and management.
    • Excessive overheads.
    • Excessive interest and/or vehicle and equipment finance commitments.
    • Poor credit approval of customers and poor debtor collection management practices resulting in high bad debts experience.
    • Undisciplined spending.

    Cause 3 – You Have a Natural Negative Cash Flow Business Model

    1. You sell on credit terms, 30, 60, or even 90 day terms, but you have to pay your payroll, rent, overheads weeks if not months before you are paid by your customers. And your payment terms with your suppliers are shorter than the payment terms you have given your customers.
    2. You carry imported stock which you have paid for weeks or months before it lands in your warehouse.
    3. You are paid by way of progress claims for which you also provide credit so you receive payment long after you have paid your direct factory expenses or subcontractors and materials expenses. Furthermore, retention payments are withheld by your head contractors or by your customer.

    There are ways to address every one of these circumstances which involve redesigning your business model and also using appropriate means of financing, most of which are still available, even if you are already in financial distress.

    Cause 4 – Excessive Debt and Capital Expenditure and/or Excessive Personal Drawings/Benefits

    • High repayments due to excessive debt and/or repayment of loans over too short a period. This especially applies to vehicle and equipment loans and lease repayments which are typically structured over relatively short terms with low or nil balloon or residual values.
    • Capital expenditure funded out of cash flow instead of being financed over the useful life of the asset which puts pressure on cash flow.
    • Funding purchase of personal property assets or the repayments on these properties far beyond the capacity of your business to sustain these payments as well as meeting the ongoing payment of all business expenses within normal trading terms including taxes and superannuation.
    • Excessive living and lifestyle expenses.

    Cause 5 – Poor Stock or Poor Credit and Debtor Management

    • Poor stock management, such as carrying stock that doesn t sell through, carrying excessive levels of stock, not clearing discontinued or obsolete stock, poor demand planning, undisciplined purchasing habits, or a poor stock management system to name a few.
    • Poor credit management, that is no or poor credit approval processes before providing customers with credit which will sooner or later result in bad debt write offs and in the worst cases will result in failure of the business.
    • Poor debtor management which includes lack of disciplined collection of debts due by customers, allowing continued credit when customers have not paid their bills within company credit terms, and lack of regular reconciling of debtors accounts.

    Some Final Words

    • Disciplined cash flow forecasting and management is critical to your business.
    • If you are experiencing some of the above issues in your business you need to address them urgently. Unless you can address these problems immediately you may be wise to engage the services of a very experienced business turnaround specialist to help you effectively plan and manage your cash flow and deal with the root causes of your cash flow problems.

    Addendum

    a) Detailed Analysis of Impact of Declining Sales

    • In the table below, sales are progressively reduced dramatically reducing net profit margin.
    • Note that all figures are presented as cents in the dollar/pence in the pound. Therefore, by way of explanation for normal sales column:

    Sales = 100 cents/pence

    Cost of Sales = 65 cents/pence

    Gross Profit = 35 cents/pence


    Tags : , ,

    The 5 main causes of cash flow problems, cash flow business.#Cash #flow #business


    The 5 main causes of cash flow problems

    Cash flow business

    Anywhere in the world, whether you are in Australia, UK, US, Canada, or elsewhere, the causes of cash flow problems are the same!

    CASH IS KING

    • The ability to generate positive cash flow year in year out is essential for a business to be viable in the long term.
    • Surplus cash flow lubricates growth of a business.
    • It is impossible to successfully grow a business unless it is both profitable AND generates surplus cash flow on a sustainable basis.
    • Without strong, positive cash flow a business will never thrive and grow.
    • Inadequate cash flow is a symptom of management problems in a business, NOT the cause.

    Evidence of Cash Flow Problems

    • Late payment or non payment of supplier invoices, direct debits being dishonoured, late payment of taxes and employee superannuation, even worse being late payment of wages to staff.
    • More extreme evidence of cash flow problems is legal action against your company by suppliers or the tax office.
    • If these problems sound familiar to you and your business, it is time for you to take immediate action to address your cash flow problems.
    • You are stressed and it is affecting your family as well.

    In this article, we take a look at the 5 main causes of cash flow problems in a business.

    Knowing these dangers will help you develop effective cash flow management and maintain a healthy business cash flow.

    Cause 1 – Declining Sales and/or Declining Gross Profit Margins

    a) Declining Sales

    • Declining sales have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
    • This typically occurs when economic conditions deteriorate, there is an increase in competition from global competitors, new competitors enter your market, or your industry declines.
    • As sales decline your overheads will probably remain unchanged so net profit decreases rapidly.
    • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining sales.

    b) Declining Gross Profit Margins

    • Declining gross profit margins have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
    • Typically occurs when there is pressure on sales.
    • A detailed table in the addendum at the end of this article vividly demonstrates the devastating effect of declining gross profit margins.

    Cause 2 – Your Business Is Unprofitable

    • Simply put, you are spending more than you are charging to provide your customers with goods or services. For example for every $1,000 or 1,000 you charge your customer you are spending $1,050 or 1,050! That is for every $1,000,000 or 1,000,000 you earn you are spending $1,050,000 or 1,050,000!
    • Inevitably your losses will accumulate to the point of having to borrow more money just to stay in business. But eventually you will come to the point where it is neither wise nor possible to borrow more money and you will have to sell your business, close it down, liquidate it, or someone else will liquidate it for you, for example the tax office.
    • A much better solution is to take immediate action to restructure your business to generate strong and sustainable profits, this will probably require a very experienced business turnaround specialist to guide you through this process.

    Main causes of lack of profitability include:

    • A flawed business model.
    • An underperforming business, either your sales marketing and/or operations are not working like clockwork.
    • Lack of understanding of financial statements.
    • Lack of accurate and timely financial statements.
    • Lack of KPI s (Key Performance Indicators) and strict monitoring of them
    • Low gross profit margins due to high direct costs and/or not charging enough for your products/services and/or extreme competitive industry pressures.
    • Poor performance and lack of productivity of staff.
    • Poor processes, many errors/defects.
    • Poor stock purchasing and management.
    • Excessive overheads.
    • Excessive interest and/or vehicle and equipment finance commitments.
    • Poor credit approval of customers and poor debtor collection management practices resulting in high bad debts experience.
    • Undisciplined spending.

    Cause 3 – You Have a Natural Negative Cash Flow Business Model

    1. You sell on credit terms, 30, 60, or even 90 day terms, but you have to pay your payroll, rent, overheads weeks if not months before you are paid by your customers. And your payment terms with your suppliers are shorter than the payment terms you have given your customers.
    2. You carry imported stock which you have paid for weeks or months before it lands in your warehouse.
    3. You are paid by way of progress claims for which you also provide credit so you receive payment long after you have paid your direct factory expenses or subcontractors and materials expenses. Furthermore, retention payments are withheld by your head contractors or by your customer.

    There are ways to address every one of these circumstances which involve redesigning your business model and also using appropriate means of financing, most of which are still available, even if you are already in financial distress.

    Cause 4 – Excessive Debt and Capital Expenditure and/or Excessive Personal Drawings/Benefits

    • High repayments due to excessive debt and/or repayment of loans over too short a period. This especially applies to vehicle and equipment loans and lease repayments which are typically structured over relatively short terms with low or nil balloon or residual values.
    • Capital expenditure funded out of cash flow instead of being financed over the useful life of the asset which puts pressure on cash flow.
    • Funding purchase of personal property assets or the repayments on these properties far beyond the capacity of your business to sustain these payments as well as meeting the ongoing payment of all business expenses within normal trading terms including taxes and superannuation.
    • Excessive living and lifestyle expenses.

    Cause 5 – Poor Stock or Poor Credit and Debtor Management

    • Poor stock management, such as carrying stock that doesn t sell through, carrying excessive levels of stock, not clearing discontinued or obsolete stock, poor demand planning, undisciplined purchasing habits, or a poor stock management system to name a few.
    • Poor credit management, that is no or poor credit approval processes before providing customers with credit which will sooner or later result in bad debt write offs and in the worst cases will result in failure of the business.
    • Poor debtor management which includes lack of disciplined collection of debts due by customers, allowing continued credit when customers have not paid their bills within company credit terms, and lack of regular reconciling of debtors accounts.

    Some Final Words

    • Disciplined cash flow forecasting and management is critical to your business.
    • If you are experiencing some of the above issues in your business you need to address them urgently. Unless you can address these problems immediately you may be wise to engage the services of a very experienced business turnaround specialist to help you effectively plan and manage your cash flow and deal with the root causes of your cash flow problems.

    Addendum

    a) Detailed Analysis of Impact of Declining Sales

    • In the table below, sales are progressively reduced dramatically reducing net profit margin.
    • Note that all figures are presented as cents in the dollar/pence in the pound. Therefore, by way of explanation for normal sales column:

    Sales = 100 cents/pence

    Cost of Sales = 65 cents/pence

    Gross Profit = 35 cents/pence


    Tags : , ,

    Business Loans, Cash Advance Loan for Businesses, business cash advance.#Business #cash #advance


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    Merchant Cash Advance – Business Loans for Working Capital, business cash advance.#Business #cash #advance


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    Tags : , ,

    Cash Flow Streams, cash flow business.#Cash #flow #business


    Cash Flow Streams

    The Present Value of a Cash Flow Stream is equal to the sum of the Present Values of the individual cash flows. To see this, consider an investment which promises to pay $100 one year from now and $200 two years from now. If an investor were given a choice of this investment or two alternative investments, one promising to pay $100 one year from now and the other promising to pay $200 two years from now, clearly, he would be indifferent between the two choices. (Assuming that the investments were all of equal risk, i.e., the discount rate is the same.) This is because the cash flows that the investor would receive at each point in time in the future are the same under either alternative. Thus, if the discount rate is 10%, the Present Value of the investment can be found as follows:

    PV = $100/(1 + 0.10) + $200/(1 + 0.10) 2

    PV = $90.91 + $165.29 = $256.20

    The following equation can be used to find the Present Value of a Cash Flow Stream.

    Cash flow business

    where

    • PV = the Present Value of the Cash Flow Stream,
    • CFt = the cash flow which occurs at the end of year t,
    • r = the discount rate,
    • t = the year, which ranges from zero to n, and
    • n = the last year in which a cash flow occurs.

    Find the Present Value of the following cash flow stream given that the interest rate is 10%.

    Cash flow business

    Cash flow business

    Future Value

    The Future Value of a Cash Flow Stream is equal to the sum of the Future Values of the individual cash flows. For example, consider an investment which promises to pay $100 one year from now and $200 two years from now. Given that the discount rate is 10%, the Future Value at the end of year 2 of the investment can be found as follows:

    As of year 2, the $100 received at the end of year 1 would have earned interest for one year while the $200 received at the end of year 2 would not yet have earned any interest. Thus, the Future Value at the end of year 2, i.e., immediately after the $200 cash flow was received, is $310.00.

    The following equation can be used to find the Future Value of a Cash Flow Stream at the end of year t.

    Cash flow business

    where

    • FVt = the Future Value of the Cash Flow Stream at the end of year t,
    • CFt = the cash flow which occurs at the end of year t,
    • r = the discount rate,
    • t = the year, which ranges from zero to n, and
    • n = the last year in which a cash flow occurs.

    Find the Future Value at the end of year 4 of the following cash flow stream given that the interest rate is 10%.

    Cash flow business

    Cash flow business

    Cash flow business


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    Merchant Cash Advance vs Business Loan – Small Business Blog #loans #for #business


    #business cash advance

    #

    Merchant Cash Advance vs Business Loan

    When things are going great, businesses have the cash flow they need for success and growth. During lean times or tight transitions, though, your company may need to find a cash advance loan to keep the doors open or to successfully expand. Though a myriad of funding options exists, merchant cash advances and platform lending like that offered here at Kabbage.com are two of the most popular and advantageous options.

    The trick is understanding the difference between the two. Each has its own unique characteristics, and is more or less appropriate for a specific business need.

    Let’s start with definitions.

    What is a Merchant Cash Advance?

    A merchant cash advance gives a business up-front cash, and takes payments from the credit card receipts on a regular (often daily) basis according to an agreed-upon amount. If you’ve been in business for more than a year, you’ve almost certainly received at least one phone call offering you merchant advance funding.

    What is a Business Loan?

    A business loan also provides up-front cash, but is paid back in monthly installments. These are usually withdrawn directly from your operations account, but terms are flexible if another method works better for your business.

    For example, let’s say your company needed $1,000 for an advertising blitz in the month prior to your peak season. With that advertising in place, you would be positioned to lead the pack in your region for your industry. Without it, your competition would get the lion’s share of the business and the lost business would amount to far more than the $1,000 you would invest. But it’s been a year since the last peak season, and you don’t have the cash on hand. You need the cash, and like any smart business person you look at the two cash advance options for your business in detail.

    Merchant Cash Advance vs Business Loan

    Though it comes from the newer platform lending model. a Kabbage business loan is still legally a loan. This means it’s scrutinized by federal authorities and subject to limitations and enforcement. Merchant cash advances aren’t technically a loan because of how the payments are structured. This means they aren’t as regulated or carefully watched. This doesn’t automatically mean that merchant advance funding comes with abusive interest rates and contracts, but it does mean you should read and understand that contract as completely as possible.

    Merchant cash advance loans approve any business that shows a history of credit card receipts sufficient to pay the money back. This makes them attractive to companies with new or bruised credit histories. Kabbage loans look at data from a variety of sources, including social sharing indicators, your cash flow reports, traditional credit reporting and industry metrics. Armed with that information, Kabbage can grant credit to struggling companies (at a higher interest rate to justify the risk), but can give lower rates to those who have earned them.

    In this category, both means of lending are about equivalent. Kabbage loans deliver funds within 24 hours of approval. Most merchant cash advances work at the same speed – but not always. Ask about this if you go with merchant advance funding and need the money quickly.

    Merchant cash advances take a percentage of credit card sales until the loan is paid. Kabbage loans take 1/6 th of the loan plus interest each month for six months. If your company needs flexibility that matches performance, a merchant advance might be the better option. If you want reliable, predictable costs for the borrowed money, Kabbage loans serve those goals more effectively.

    For the first two months of a Kabbage loan, the interest rate is between 1 and 13 percent of the principal, based on the metrics gathered during the approval phase of the application. The rate then falls to 1 percent for the remaining six months of the loan. Merchant cash advance operations do not typically publish their interest rates. Independent analysis of a variety of merchant advance funding offers puts the average APR at more than 38 percent.

    Merchant cash advances often include set-up fees, processing fees and even payment fees that can as much as double the actual cost of the loan. Kabbage loans include no extra fees. They cost as much as the “price tag” says.

    Which is the better option? As with all business decisions, there’s no single good answer. Platform lending like Kabbage serves one set of business needs, while cash advance loans serve a different set. While we can’t give you a definite answer, we hope this has helped you identify the best questions. If not, watch this two minute video on Merchant Cash Advances vs Kabbage Business Loans for more information.

    If you have experience with merchant cash advances versus business loans, tell us a bit about it in the comments below. Help the Kabbage community benefit from your experiences.

    Jason Brick speaks internationally to small businesses after a fifteen-year career in managing companies for himself and others. His books include the best-selling Mastering the Business of Writing and upcoming Ownership Evolution. When not writing or speaking he enjoys martial arts, board games, cooking, travel and spoiling his wife and sons. He usually lives in Oregon, but is spending the year in Malaysia.

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