What small businesses need to know about cash advances

Most business owners use small business credit cards to make purchases. But what if you need to buy something that you can’t charge on your credit card? When cash flow is tight, you may be tempted to get a credit card cash advance. 

Though a credit card cash advance may feel similar to withdrawing money with an ATM card, there are many important, and potentially costly, differences.

How do cash advances work?

Most credit cards provide access to a line of credit. Normally you access that line of credit by making a purchase. That purchase appears on your credit card statement and you can pay irt off (without interest) or pay it back over time (with interest). 

With a credit card cash advance you use your credit card to get cash you can then spend how you choose. In other words you borrow against your credit card line of credit without using it to make a purchase. 

(Don’t confuse credit card cash advances with merchant cash advances. They are completely different types of financing.) 

You can access a cash advance on your credit card in two main ways:

1. Get cash at an ATM 

You’ll need to get a PIN (personal identification number) from your card issuer to use your credit card this way. If you haven’t already received one, you can request it from the card issuer but it may take several days to receive it by mail. 

Once you have your PIN, you simply insert the credit card into the card slot in the ATM, enter your PIN, and request the amount you want to withdraw, up to your available limit for cash advances. There may be daily ATM limits as well. 

You’ll also need to agree to fees charged by the ATM. (Your credit card issuer may charge a separate cash advance fee.) 

2. Get cash at a bank

Go into a financial institution (bank or credit union) to get a cash advance in person. If your card has a Visa or Mastercard logo on it, for example, go into the branch of a financial institution that displays those logos. You’ll need to provide identification, and the teller will process the cash advance for you. 

8 Important Things to Know About Credit Card Cash Advances

Here’s what else you need to know about business credit card cash advances.

1. Credit card cash advances usually have higher interest rates

Most small business credit cards will have a higher interest rate for cash advances than for purchases or balance transfers. The issuer must disclose the cash advance interest rate, and this higher Annual Percentage Rate represents the increased risk of default associated with customers that use their cards to get cash. Make sure you check the cash advance APR before you take one.

2.Most credit cards impose costly cash advance fees

In addition to paying a higher interest rate on your credit card cash advances, credit card companies will typically impose fees for the transaction. It’s not uncommon for a small business credit card to charge a cash advance fee of 5% of advance amount, or $15, whichever is greater. While a fee of 5% may not seem like a lot of money, when that cost is added to the interest charged, the effective cost of a cash advance can be quite expensive.

3. There’s no grace period on cash advances

The most affordable way to use your credit cards is to avoid interest charges by paying your monthly statement balances in full. But when it comes to cash advances from your credit card, there’s no grace period. Every time you make a cash advance, interest starts accruing on that amount from the day of the transaction until you pay it off.

4. You can also incur foreign transaction fees

Sometimes credit card users find themselves in a foreign country and need cash to make purchases. Just like purchases made outside of the United States, foreign cash advances may incur a foreign transaction fee, usually 2—3% of the purchase amount.

5. You May pay ATM fees

In addition to the cash advance fees and a foreign transaction fee, credit card cash advances can incur ATM fees charged by the owner of the machine. If you’re counting, that’s a total of three additional fees that you could potentially be charged for a single transaction, and that’s before you figure in the cost of interest charges.

6. You must get a PIN first

Most credit card cash advances occur at ATMs, and you are required to input a PIN before the transaction is approved. But unlike an ATM card, you won’t receive a PIN number in the mail automatically after you receive a new credit card. To set your PIN, you will have to contact your card issuer. (Note that not creating a PIN is a great way to avoid accidentally making a cash withdrawal.)

7. Cash advance credit limits are smaller

Rarely is the cash advance limit on a credit card the same as the credit card’s available credit for regular purchases. Because these transactions are higher risk issuers often set the cash advance credit limit at a percentage of the total credit limit. If you’re hoping to take a $10,000 credit card cash advance on a credit card with a $10,000 credit limit, you’re out of luck. 

Another way to limit the costs of a credit card cash advance is to set limits on the account. To do this, contact your card issuer.

8. Cash advances don’t earn rewards

If you are trying to spend a specific amount on your rewards credit card to earn a welcome bonus or limited time offer, a cash advance will not help you reach that milestone. They also don’t earn rewards.

When business credit card cash advances work

Cash advances may be an option as a short-term small business loan in a pinch. Although cash advances carry higher interest rates than some types of financing (like SBA loans or bank lines of credit), they may have lower interest rates than other types of financing (such as some merchant cash advances or lines of credit). And if you already have a credit card account, you don’t need to wait to be approved for other financing before you can access this cash. 

Cardholders may also be able to successfully use a cash advance to take advantage of an opportunity to snag significantly discounted inventory or equipment. They can also serve as temporary financing while other small business financing is secured. 

Be careful, though. When you use a cash advance you’re taking on credit card debt that can accumulate quickly. 

Startups need to be especially careful, as it’s hard to predict when revenues will be sufficient to pay back the credit card balance. Minimum payments allow the business to stretch the debt out for years, while interest continues to accumulate.

How To Avoid Needing A Cash Advance

There are several ways to avoid turning to a cash advance for financing. 

Use a convenience check instead. Your card issuer may offer convenience checks that you can deposit into your business bank account. The interest rate for these may be the same as for a balance transfer, and they may even carry 0% APRs for a limited period of time. Check with your issuer to see what offers are available. 

Consider a business credit card that offers 0% APR on new credit card purchases. 

Get a line of credit. If you need a short-term loan, consider a business line of credit. If your business qualifies, you may be able to get funding from an online lender in just a day or two. Bank lines of credit will typically take longer to get approved and funded but interest rates will be lower. 

Going forward, creating an emergency fund is a helpful way to survive uneven cash flow. Unlike borrowing money, taking the money you need from your business savings account won’t cost you anything.

Best business credit cards for cash advances

If you need a business credit card cash advance, here are some of the best credit cards to consider:

This is one of the only business credit cards that doesn’t charge a cash advance fee. (The interest rate is higher for cash advances than purchases, however.) Plus it offers a generous .

Capital One cards carry lower cash advance fees than other cards, and this card also offers an intro APR of . This may be a better alternative than paying the higher cash advance APR. The annual fee is . And if you need to get a cash advance while you’re outside the country, it’s helpful to know the foreign transaction fee is .

Bank of America® Business Advantage Customized Cash Rewards Mastercard® credit card

The cash advance fee on this card is also lower than the typical 5% fee, but currently slightly higher than Capital One’s. However the cash advance interest rate is slightly lower. In addition, you can take advantage of .

Apply now

Bank of America® Business Advantage Customized Cash Rewards Mastercard® credit card

Terms, Rates & Fees

No annual fee and 3% cash back in your category of choice.

Pros

• No annual fee
• Generous rewards structure.

Cons

• Rewards cap on dining

Intro APR

0% for 9 billing cycles on purchases

Purchase APR

17.49% - 27.49% Variable APR on purchases

Annual Fee

$0.00

Welcome Offer

$300 online statement credit after you make at least $3,000 in purchases in the first 90 days of your account opening.

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Frequently asked questions about credit card cash advances

Why Do Credit Card Cash Advances Cost More?

It’s a valid question. After all, whether you are making a purchase with the card or getting cash, you are accessing your credit card’s line of credit. There may be two reasons why these transactions are more expensive. First, card issuers normally make money from the swipe fees merchants pay when they accept cards. This, however, is not the case with a cash advance. (At the same time, though, not all credit card purchases incur interest, but cash advances do.) 

Issuers will probably maintain that higher risk is the reason cash advances are more expensive. Presumably issuers have found that cardholders who use cash advances are more likely to default than consumers who use their cards for purchases. (Although it’s worth noting that many cardholders are able to use convenience checks or balance transfers to access cash on their credit cards, often at very low interest rate. )

How Much Of A Cash Advance Can I Get From A Credit Card?

Your credit card company will set your cash advance credit limit. It is usually lower than your credit limit for purchases, and often significantly lower.

Is Interest On Cash Advances From Credit Cards A Business Expense?

It may be. Generally your business can deduct interest on a business loan if it meets IRS requirements.

Do Cash Advances Hurt Your Credit Scores?

The fact that you took a cash advance on your credit card will not appear on your personal credit reports or business credit report. In and of itself won’t lower a good credit score. If a high balance on your credit card is reported, however, your credit scores may be affected by high credit utilization.

It’s also worth noting that most business credit cards don’t appear on personal credit reports unless you report. (Here’s a list of how business credit cards report to personal credit.)