Small business owners can probably think of a few scenarios in which they might want to use a business credit card cash advance. But even though these scenarios are different, the use cases for business credit card advances generally fall into two larger buckets: the first is if you’re in a cash crunch, and the second is if you can’t find another source of capital. Whichever your reason, you’ll want to know your options for business credit card advances.
You’ll need to know the risks involved in taking out a cash advance, too. On top of fees, business credit card cash advances don’t have a grace period, which means they begin accruing interest immediately, and don’t stop until you repay them. So, as you might expect, you don’t want to rely on them often—and want to avoid them altogether if you can help it. Most come with high interest rates, and if you hold off paying, your interest could quickly become more expensive than the advance itself. So, you’ll want to be well informed before immediately pulling cash with your business credit card.
We’ll look into how most business credit card cash advances function, and what they cost. But we’ll also focus on alternatives, including a few ways to create a business financing safety net in the future. Because even if you’re looking for a business credit card advance now, you’ll benefit by knowing how to supplement your cash flow down the line.
Why You Might Need to Look Into Business Credit Card Advances
We’ll get into your best options in just a second. First, though, it’s important to figure out why you need a business credit card cash advance.
1. You’re in a cash flow crunch.
This is the bigger bucket of the two. Consistent positive cash flow is perhaps one of the most difficult financial skills for a business owner to master—and some never do. (Side note: That’s why cash flow is one of the best indicators of all-around business health.)
With that in mind, there comes a time in many business owners’ operations when they need more cash than they have. Maybe there’s an emergency to deal with—or even an opportunity to seize. Whatever your reason, considering business credit card advances could give your company the liquidity it needs to temporarily stay afloat or get ahead.
2. You’re a startup.
For the great majority of business loans, you’ll need some sort of business credit history, time in business, and history of revenue. That’s because lenders need to figure out if you’re a risky borrower—or, more simply, if you’re going to return their cash.
By nature, startups just don’t have these credentials. Which is tough, because startups need cash to get the ball rolling and generate that revenue that lenders want to see. Although there are startup loan options for business, some startups can begin their businesses on credit cards alone. And that’s okay if you’re careful (especially if you do it with, say, a 0% intro APR credit card and plan savvily; more on that below).
With all that in mind, though, you might be looking into business credit card advances if you need immediate liquidity and don’t have access to a lot of cash options because of your limited history as a startup.
How Fees for Most Business Credit Cards Cash Advances Are Structured
You’ll quickly see that there really aren’t great business credit cards for cash advances.
Cash advances are expensive, period. And, as a savvy business owner, you should think of a cash advance as a last resort due to fees. Although you might be used to seeing some personal credit cards with no fees for cash advances, like those from PenFed, business credit cards don’t offer those same rate breaks.
Here are the fees you can generally expect if you choose to take out a business credit card advance:
Most cards will assess an initial fee for a cash advance. An average fee will either be a flat amount (like $5) or a percentage (like 3%) of the withdrawal, whichever is more.
So, say you withdraw $2,000. Of the two fees, 3% of $2,000 is $60. So, your fee would be that $60.
Next, your advance will begin accruing interest upon withdrawal. These rates are fairly consistent across the board—generally in the 20% to 25% range, though they can sometimes climb higher. It’s important to note here that rates on cash advances do vary according to the market Prime Rate, so you’ll want to check with the card issuer for the most up-to-date information.
Let’s take that $2,000 advance again. Say you borrowed your $2,000 for a month at an APR of 24.99%. Your interest will be $41.65. Combined with your fee, you owe $101.65 if you pay back on time. It’s tough to give up an extra hundred dollars if money is already tight.
If this sounds a bit hard to swallow, keep on reading to see some alternatives that you might not have considered, too.
Plan Ahead for Cash Flow Crunches with Business Financing Alternatives
Although you can’t quite predict your future needs—and it’s not always possible to sock away an emergency fund as an entrepreneur—you can still plan for the possibility (or the likelihood) that, at some point, your cash will get tight. These options especially work if you have a little bit of business history under your belt, and you’re not too keen on using a business credit card cash advance option.
Best General Alternative to Business Credit Card Advances: Business Line of Credit
We say that every business owner should have a business line of credit, even if they’re not in an emergency at all. That’s because business lines of credit are your best option when cash is tight. They’re something of a hybrid between a business loan and business credit card (which is sort of what you’re after right now, anyway). But the nice thing about them is that you can have one waiting in the wings and don’t have to tap into it until—or unless—you need or want to use it.
With a business line of credit, you work with a lender to get approval for a certain amount of funds from which you can draw. And you’ll only pay interest on what you borrow. These interest rates are generally lower than credit card APR rates (contingent on your creditworthiness—but there’s flexibility with approval), and you can often get approved for amounts higher than business credit card limits, too (some go into the millions).
Plus, these are fantastic business credit builders—especially because most business lines of credit are “revolving,” which means they re-up once you pay back what you’ve borrowed in full. That’s great news for startups. You can apply for a business line of credit now, and have it ready next time you’re in need of cash.
Best Accounts Payable Alternative to Business Credit Card Advances: Invoice Financing
Some businesses don’t have issues with profitability, but rather have their money tied up in unpaid invoices. If you work on trade credit with your customers (aka net terms) and need liquidity before your balances come due, you might want to consider invoice financing.
Also called accounts payable financing, invoice financing enables you to work with a lender who’ll front you up to 85% of an unpaid invoice. You’ll get the remainder, minus fees, once your customer pays off their balance.
Many major companies take this route—especially those who only fill a handful of orders each year but sell their products for millions or even billions of dollars (think aerospace and technology, for instance). You might not be building rockets to Mars, but you do need cash to run your business—and you might be able to rely on invoice financing as a commercial bridge loan to bridge the gap between checks, rather than relying on a credit card loan.
Best Startup Alternative to Business Credit Advances: Blue Business Plus from American Express Small Business
One tool that many business owners—but especially startups—should have in their arsenal? A 0% intro APR business credit card. This can prove a great alternative to business credit card cash advances.
As you might figure out from the name, 0% intro APR credit cards start off with a period of no interest on your card, so you can go month to month without paying off your balance in full. That means you can use it like an interest-free loan for the duration of the introductory period.
So, if you have cash flow problems during that time, this can be a savior—especially because 0% is a whole lot better than a fee plus ~25%, or whatever your card will charge you for a cash advance. In fact, free is way better than anything!
We really love the Amex Blue Business Plus for this because of its 12-month 0% intro APR period. After your 12 months are up, a variable APR sets in based on your creditworthiness and the market Prime Rate. But you’re not only getting some spending power, you’re also building business credit. It’s a really smart idea for startups—and, really, for all businesses.
Figuring Out the Best Cash Advance Option for Your Business
You can definitely use a business credit card to get cash now—as long as you calculate what it’ll cost your business and understand the common fee structure. But hopefully you’ve learned, too, that the best cash business credit card cash advance options for credit cards might not be credit cards at all. Plan for the future now, and save yourself some money later.
Meredith Turits is a contributing writer for Fundera.
Meredith has worked as a writer and editor for more than a decade. Drawing on her background in small business and startups, she writes on lending, business finance, and entrepreneurship for Fundera. Her writing has also appeared in the New Republic, BBC, Time Inc, The Paris Review Daily, JPMorgan Chase, and more.