CFG Merchant Solutions
Human beings have different abilities in terms of finance. Often people and particularly investors need money to accomplish their investment dreams. Due to the difference in financial strengths and the urgency of the need, investors typically seek for loans or cash advances. There are numerous types of loans available in the lending market. However, as a brilliant entrepreneur, you need to understand every kind of credit to select the one for you and your business. This will help you make informed decisions and make smart moves in the business world.
A merchant cash advance is technically not a loan. However, it has a similarity with a loan in the sense that both are business financing options that provide entrepreneurs with working and small businesses with working capital. While both are sources of working capital for business, they are structured differently and offered on different terms. To understand more about a merchant cash advance, read on.
A merchant cash advance is an advance on your future credit card sales. This is basically advance cash in exchange for a percentage of daily sales through debit and credits, plus a fee. This can be a quick way to get some money to address urgent business needs without needing collateral. The fee you pay in terms of a percentage is referred to as the retrieval rate or the hold back. It usually ranges from 5% to 20% of your total daily sales based on credit card sales and the repayment period. The lenders generally review your sales receipts dating to the last six months and the average credit card sales to determine the advance cash you are eligible for.
Benefits of merchant cash advance
It is quick and efficient – the application process is straightforward. It is something any business owner can easily do online. Besides, the funding is approved faster and delivered to your account. The process could take less than an hour at times.
A perfect credit score is not a requirement – if you have a poor personal and business credit score, worry no more. Merchant cash advance lenders are very lenient and barely focuses on your credit score.
No collateral required – merchant cash advance is ordinarily unsecured. Thus, you do not need to present a personal or a business asset as security for you to obtain this loan.
High borrowing limits – merchant cash advance offers extensively high limits for the cash you can borrow. Some lending companies have set the limit as high as $2,000,000. This is an excellent opportunity to acquire funding especially if you lack collateral.
Flexible payments – the payments of merchant cash advances are applied at a flat rate to the daily sales of your credit card. The repayment is purely based on the sales you make daily.
Shortcomings of merchant cash advance
Higher fees than traditional loans – the overall cost and interest earned from a merchant cash advance is usually higher than the other conventional loans.
Lack of insight – merchant cash advances are usually offered by private organizations and individuals, and thus the government has no control or regulation over the practices involved.
Daily deduction of credit card and debit card receipts – this makes it hard to generate working capital as cash is deducted daily.
It is a short-term solution – most lenders usually offer merchant cash advances to be repaid within 12 months. Basing on its cost and interests incurred, it is unlikely to drive positive results.
When to consider a merchant cash advance
Merchant cash advance is usually a good option if you have a poor business or personal credit score. If you are trying to rebuild your credit score and you have a brilliant business idea a merchant cash advance can be very instrumental. The funding does not reflect on your credit report.
Due to the flexible repayment terms, a merchant cash advance is the ideal funding for you if you run a seasonal business. The repayment is purely based on sales, unlike other loans where you have to make a fixed monthly payment.
If you are an online merchant, this funding is a great option. Online businesses usually receive payments through credit cards. This type of businesses are the prime candidates on merchant cash advance basing on the mode of payment utilized by these businesses.
How to apply for merchant cash advance
Merchant cash advances offer easy eligibility terms, and an easy application procedure alike. The process is fast and easy. The applications are usually made online, and most lenders typically approve then the same day. It is worth noting that most lenders use the incoming volume of cash to determine the amount your eligible for. Thus, ensure your business is receiving a good cash flow through the credit and debit cards. The documents required during the application process usually are identification documents and business documents such as Business tax returns and voided business check.