Getting a cash advance may be quick and easy, but it’s expensive. Learn more about how they can help or hurt your business.
When a business needs money, it may be tempting to turn to a quick fix rather than taking the time and making the effort to apply for a loan from a bank or reputable microlender. While a cash advance is usually easy enough to get and you can have the funds almost immediately, you may be surprised just how much that convenience can cost you.
Credit Card Cash Advances
This is exactly what the name suggests: getting money from a credit or charge card issuer. Simply put your card into an ATM or present it at a bank, and get cash. Instead of buying an item or a service, you are essentially buying money. You’ll usually be able to get an amount equal to the credit limit you have on the card, or a fairly high percentage of it.
Unlike when you buy an item with your card, however, you’ll be charged an extra fee for borrowing money with it, usually from three to five percent of the amount, with a minimum fee of $10.
You’ll also pay a higher interest rate on a cash advance than you would when you make an actual purchase. The average annual percentage rate of interest on a credit card cash advance is 24%, which is 6% higher than the average rate on purchases.
In a recent survey, found one company charging 36% interest on cash advances! Not only that, but the interest will begin (and compound, building on itself) on the day the cash is borrowed; there is no grace period before interest charges start. (more…)