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A merchant cash advance can be an effective tool in helping your company obtain greater financial flexibility. It is not a loan, so you won’t have to worry about a credit check or listing a debt on your company’s balance sheet. However, it is important to know that it isn’t always the best option, and it may not be ideal for companies that don’t have steady credit card receipts. With that in mind, let’s look at what a merchant cash advance is and how it can help.
What Is a Merchant Cash Advance?
A merchant cash advance allows a company to obtain an advance on future credit card transactions. The amount of the advance is based on the value of credit card transactions over the previous three to six months. While some lenders will advance 100 percent of that number, others will only provide 50 to 80 percent of that average. Businesses may be able to get advances for as little as $5,000 or as much as $250,000.
No Credit Check Needed
One of the biggest hurdles that new companies face is getting financing at an affordable rate. This is because banks and other traditional lenders want to work with companies that have proven track records of earning money. They also want to work with business owners who have good personal credit scores.
In most cases, business owners will secure personal loans that they can use to help grow their companies. However, some entrepreneurs don’t want to risk their homes or other assets to acquire working capital. Therefore, a merchant cash advance is ideal for those who need money but don’t want to use personal assets to do so.
The Advances Are Paid Back Daily
You will pay back your cash advance on a daily basis. Typically, you will pay a percentage of all credit card revenues generated on a given day. The percentage ranges from 5 to 15 percent depending on the agreement that your company reaches with a merchant cash advance provider. This can be ideal for your business as there is no minimum payment that needs to be made on a given day or in a given month. If you don’t have any credit card transactions in a day, week or month, you won’t have to pay your advance provider anything.
Almost Any Company Will Qualify
One of the key benefits of a merchant cash advance is that almost any company will qualify for one. The only true criteria that most advance providers have is that your business has been in existence for at least a year or two. Companies that are in industries seen as controversial or immoral may be eligible for this type of financing. For instance, if you run a gambling website or own a gun manufacturing business, many lenders may shy away from providing a traditional loan. However, a merchant cash advance provider may be able to help.
What’s the Process of Applying for a Merchant Cash Advance?
It is relatively easy to apply for a merchant cash advance. All you need to do is find the website of your preferred advance provider, fill out an application and submit it. The entire process takes about 10 to 15 minutes to complete assuming that you have access to your company’s sales figures.
Once you have submitted your application, the advance provider will let you know whether your request has been approved or denied. If it has been approved, you can then decide whether to accept any offer presented to you. It is often a good idea to take a merchant cash advance offer to an attorney for review before accepting it.
This is because your company may be required to enter into a long-term deal. Furthermore, the advance provider will charge a fee that is similar to an interest rate. It is referred to as a factor rate, and it may be worthwhile to have a professional explain what it is and how much you would have to pay.
If your company is in need of financing, a merchant cash advance can be an ideal way to get it. With no credit check and the ability to get thousands of dollars quickly, it can be what you need to grow your company or simply provide extra financial flexibility.