What’s Better For My Business? Cash Advances Or Payday Loans


Running a business takes a lot of time and money, so it’s no wonder that a lot of owners look to loans and other forms of finance to help get them through. Certain expenses can sometimes make the biggest difference as well. For instance, if you look at credit card processing for small business can cost a lot more than it’s worth, so you may have to make some compromises. When it comes to borrowing finance, there are two options that a lot of business owners like to use: cash advances and payday loans. Let’s take a look at the benefits of each and which one is best for your business. 

What Is A Cash Advance? 

A business cash advance isn’t a loan, and it doesn’t affect your overdraft. Instead, it’s borrowing against your future sales. So, if you were to borrow a certain amount, it’s really an advance on the takings that you’ll make in the future. Typically, business owners will use them to help buy stock or equipment as these things are crucial for a business and sometimes can’t wait until next month. Your repayments are often flexible too, with them being based on how many credit card sales you make each month. No matter what type of business you have, as long as you take card payments from your customers, you should be able to apply for one and be successful. 

What Is A Payday Loan? 

A payday loan is completely different to a cash advance, as for one thing, it’s actually a loan. They’re normally very short-term and you’ll generally agree to pay it back within a few months. Some payday loans will have a limit of how much you can borrow, with a few lenders only allowing you to borrow a few hundred. You’ll generally see a payday loan with terms asking you to pay it all back by your next payday, hence the name. Just like borrowing against your future sales with a cash advance, you’re kind of borrowing against your future salary. However, payday loans can have very steep interest and only allow you to borrow small amounts of money. Make sure you read all the terms and conditions before agreeing to a payday loan too.  

Benefits Of A Cash Advance

There are lots of benefits to getting a cash advance, the main one being able to access the funds you need for your business. But there are lots of other ones as well. You may find that a lot of cash advances don’t have interest rates, meaning you only pay back what you borrow. They may also have flexible repayment terms, allowing you to increase or decrease the term length. Your repayments can fluctuate as well, so when you’re busier you pay more, and when you’re quiet you pay less. You typically won’t have to provide any sort of collateral when applying for a cash advance either, because you’re using your future sales for this purpose. Cash advances can be quite quick to process as well, with some businesses seeing the funds in their accounts in a few days. Comparing that to a normal loan, there are a whole host of benefits that loans can’t provide but a cash advance can. 

Benefits Of A Payday Loan

Payday loans are extremely easy to come across, and they tend to have high approval rates. This is because they can have fewer criteria than other loans and advances, so even with poor credit, you might be in with a chance. This can mean that if you’re business isn’t doing amazing at the moment, you won’t be immediately discredited. You also won’t need to secure the loan with assets or collateral either. Some payday loans even have a cooling off period, which is where you have a set amount of time to change your mind about the agreement and return the funds. Although payday loans have gotten some bad press over the years, there are actually some good things about them. 

The Downsides To Both 

Both of these finance options could work well for your business, but they do both have some slight downsides. While a cash advance is great, it’s only a temporary solution to your issues. If you find that after you’ve used your advance, you’re still short on cash, then the problem clearly lies elsewhere. Cash advances also decrease your cash flow on a daily basis, as every card payment you take is going to count towards your repayment. Some lenders of cash advances will also only allow you to accept card payments, and not cash, in the hopes of you paying more to them sooner. This can be a major disadvantage to you, especially if a lot of your customers do like to use cash. 

Payday loans also have some downsides too. For example, they are thought to be quite costly as the interest rates can be sky high, causing you to pay back way more than you borrowed originally. It can then be quite hard to pay back what you owe in such a short space of time too. You can easily then become trapped in a vicious cycle of borrowing to pay off what you owe. This is considered one of the biggest disadvantages of a payday loan, so don’t feel like this is your only option if you’re worried about paying it back in time. 

There isn’t a right or wrong answer to the question “which is better for my business?”. It all depends on you and how you want to run things. If you take plenty of card payments and want a bit of cash to help tide you over or purchase some new equipment, then a cash advance could be ideal. Alternatively, if you don’t have the best credit history and need funds immediately, then a payday loan could work better. Deciding which one is best for you means you need to weigh up the pros and cons of each and you’ll soon see which will benefit your business more. 

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