Bad Credit Business Loans and Cash Advances

For consumers with poor financial history, bad credit cash advances are difficult to obtain. These loans are essentially high risk personal loans. They are often offered by unscrupulous lenders. There are a number of risks associated with bad credit cash advances, and they should only be considered in a limited number of circumstances.

High Interest Rates

The interest rates on these small loans are the highest in the business. You will need to use a paycheck or other verification of future income in order to secure the loan. The loan will be distributed as a percentage of the value on the document, called a loan to value ratio.

The loan to value ratio is very high on most cash advances, and the interest rate is additionally high. This means the sum you will owe back once you do secure the income will actually be greater than the income itself. You will end up needing an additional income source to repay the loan if you spend the entire loan amount.

Compounding Late Fees

Lenders are aware most people seeking these cash advances will not have the funds available to pay the loan back in full. In fact, in most situations lenders are not expecting to be repaid for the loan on time. This is the opposite of the goals of more traditional lenders; traditional lenders are happy to have the contract fulfilled on schedule.

Cash advance lenders look forward to late payments because they then can charge high late fees. These late fees represent a huge portion of the income they receive as a whole. They also hope the borrower will take another loan in order to cover the fees. In this way, the borrower gets into a cycle of debt resulting in high profits for the lender.

Predatory Lending

These debt cycles are a predatory lender's best friend. A predatory lender is one who knows the individual borrower cannot truly afford the loan but extends it in hope to turn a profit through the default or late payments the borrower will likely need. Cash advance lenders are almost always predatory; in fact, some states have outlawed the practice. It is important to note not all cash advance lenders have these motives. Those who provide cash advances to businesses instead of individuals tend to have higher loan standards and a better rating.

When the Benefit is worth the Risk

There are few times the benefits of a cash advance are worth the high rates and other risks. If you can keep the sum borrowed very low and pay it off immediately, then you may be able to use the option as a temporary financing arrangement. This is best for business borrowers who need the cash in order to fill in an order and can expect payment immediately upon filling the order. Personal borrowers have more at risk because they tend to have less sources of income than businesses. If you are taking a personal cash advance, borrow only what you absolutely need and pay the loan off early.

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