Cash advance providers ride to the credit rescue: when banks are unwilling or unable to provide the funding that small to mid-sized business owners need, cash advances can provide a lifeline by providing capital against future credit card receivables.

• Author: Jundanian, Lee J.
• Position: WORKING CAPITAL

Access to working capital can mean the difference between "make it or break it" for many small and mid-sized businesses.

In an ideal situation, a business will generate enough revenue from sales to cover the cost of day-to-day operations, essential purchases, renovations and improvements. But when major unexpected expenses crop up or--as we're seeing today--the economy grinds to a screeching halt, owners can find themselves struggling to get their hands on the working capital they need to keep their businesses afloat.

Traditional bank loans may be a good option for some business owners under such circumstances, but banks aren't willing to finance everyone who seeks their help. Business owners who are considered "high-risk" borrowers, often due to less than perfect credit scores or insufficient collateral, are likely to face considerable difficulty obtaining a bank loan. And the credit crunch has made lending standards even higher.

Even some with sparkling credit history can be denied if the loan amount they request is too low. As the old adage goes, "Banks lend you money that you already have."

As business owners cope with the flagging economy, others may be turned off by the lengthy and complex application process required for many traditional loans. Those in urgent need of funding may not have the time or the patience needed to provide the bank with copies of business plans, tax returns and financial statements. Time can be of the essence for business owners with an immediate need for working capital.

So, where can cash-strapped business owners turn? With increasing frequency, business cash advance providers are becoming an answer. Although cash advance services have been around for many years, their popularity with small and mid-sized businesses has grown in recent years as information has spread and proprietors have become more informed about this relatively simple financing option.

A Kind of Sales Transaction

Many business owners and financial advisors are very familiar with the regular sale of financial assets, including mortgages, automobile contracts and accounts receivable, among others; a business cash advance is just another example of such a sales transaction.

It's important to understand the differences between a business cash advance and a loan. Rather than lending money to business owners, cash advance providers buy a fixed share of a business' future credit card transactions. And unlike traditional loans, business owners are...