Cash advances are used for a variety of reasons, both personal and for business. When someone needs cash quickly, a cash advance can be a viable option. This could be for reasons such as an unexpected bill, repairing a car, or taking a vacation. There are also times when businesses need to take out a cash advance. This may be to cover costs while they wait for payments from customers, to tide them over until the next payday, or to finance inventory.
Yes, there are a number of reasons why people might take out a cash advance, but the main reason is usually for business purposes. Here are a few more reasons where cash advance is applied:
1. Emergency situations
A cash advance can help cover unexpected costs such as car repairs, medical expenses, or home repairs. These types of expenses can be very expensive, and many people don’t have the money saved to cover them at the time they arise. A cash advance can help with these types of things.
2. Inventory financing
This is a big one for businesses that sell products, as opposed to services. If a business needs to buy inventory in order to fulfill orders, but they don’t have the money at the time, taking out a cash advance is one option for getting the money they need.
3. Retain capital
Sometimes a business needs to hold on to money for a specific project. They may have investors or lenders that want a certain amount of money for this, and in return, they want to be able to count on the funds being there when the time comes. In this case, it’s imperative that they are able to secure it without draining their cash reserve at the bank.
4. Monthly bills
While some businesses may be paid on a weekly basis, many are paid monthly or even less often. This means that there are sometimes several weeks where the business has to wait for the money to come in but still needs to pay bills. Taking out a cash advance can help fill in the gaps when this happens.
5. Debt consolidation
When a person has more than one type of bill that they have to pay each month, taking out a cash advance is one option to help manage the debt. It can be used as a tool to reduce how much the individual owes and how frequently they owe it. It can also be used to pay bills at different times, instead of all at once.
If you have several high-interest credit cards, a cash advance can help you consolidate them into one low-interest loan. For example, if you have three credit cards that each carry a $1000 balance, a cash advance might be the quickest way to pay them off and save money in the process.
Bottom Line
The purpose of cash advance is to help a user meet their immediate financial needs, whether those needs are caused by an emergency, a temporary business problem, or a continuation of debt consolidation. Not all cash advances are intended for business purposes, but they can be if the user has no other way to pay their debts. As is true with any type of credit, you should check with your creditors prior to taking out a cash advance on them.
