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Should You Use a Business Credit Card Cash Advance?

If your business has been struggling, you might be seeking out short term cash advances to get by. Whether it’s an unexpected emergency, downturn in sales, the inability to find another source of capitalor even a global pandemic, most businessowners have or will, at one point, find themselves in a financial crunch.

Business credit card advances can be a real boon when you need money fast, but thespeed and easier access means that you need to consider the drawbacks, too. Credit card advances come with high feesand little to no grace period, so the cost of the loan may be too dear to some.

How business credit card cash advances work

First, you’ll need a business credit card with available credit to borrow against. Depending on your credit card company, you can go to an ATM and use your assigned PIN to borrow cash, or go to a financial institution andlet the teller administer your cash request. There may be an initial fee associated with withdrawing the money, either a flat rate or percentage of the overall advance. After you withdraw,and after the grace period (if there is one), you will immediately start accruing interest at the designated rate.

Advantages and drawbacks

  • Immediate cash. When you’re struggling, the lure of immediate cash to keep operations running is a hard siren’s song to ignore. You should be able to borrow a significant amount of money right away, without going through banks, credit unions or other lenders, making it good for emergent needs.

  • Fewer or no restrictions. Unlike going to a financial institution for a traditional loan, there is rarely any paperwork to fill out for a business credit card cash advance. That means that if you lack collateral for a loan or might be turned down for other reasons, business credit cards can be an attractive, if not your only option.

  • High interest rates. Unfortunately, the benefits come with a price. Your interest could start accruing right away at rates around 25%, sometimes more. If you borrow $20,000 one month, your debt could be $25,000 the next. If you know you can pay back the funds in full within a month or two, this could be affordable, but consider your choices carefully.

  • Could impact your personal credit. Most business credit cards require the account owner to be a guarantor, making them personally liable for paying off the card. That can go on to impact your personal credit score, making it more difficult to get loans and credit cards in the future.

  • You may be personally responsible for the debt. Finally, you may be personally responsible for paying off the debt, even if you’re an LLC or corporation. That will also significantly impact your personal credit, as well as your finances.

Ultimately, you should think of business credit card cash advances as a last resort. There are plenty of alternative financing options available that will be far less risky