If your business needs capital quickly, a merchant cash advance is a good option. This type of advance helps your business raise funding within just 24 to 48 hours. Once the money arrives in your merchant account, you can use it for all of your business needs. Whether you have a new business opportunity or need to cover payroll in a slow month, there are a number of advantages of getting a merchant cash advance.
The Mechanics of a Merchant Cash Advance
This is not a loan. Instead, it is an advance on your future sales. The provider looks at your recent history of credit card sales per month. With this information, the provider can offer you an advance from 50 to 250 percent of your monthly credit card sales.
Once you are approved, you instantly begin to repay the advance. Normally, your repayment amount will be 5 to 20 percent of your credit card sales. The percentage that you repay to the lender is known as the retrieval rate or the holdback. The percentage changes based on your credit card sales, the size of your advance and the repayment period. The terms may be for as short as 90 days or as long as 24 months.
The provider will determine the amount you can get according to the average credit card sales you make each month. They will normally look at two to six months of your sales to calculate the average amount and the stability of your sales. Then, you can get an advance of 50 to 250 percent of your credit card sales each month.
The Benefits of Getting a Merchant Cash Advance
There are several useful advantages to getting a merchant cash advance. For business owners in need of funding, this type of advance is a convenient option.
Money in your account the next day: The approval process can be done entirely online in just a couple of hours. Then, you get the funding in your account within just 24 to 48 hours.
No collateral: Unlike a standard bank loan, you do not have to have collateral. A bank wants collateral to make sure that they can recoup the loan if you default. With a merchant cash advance, no collateral is needed.
Easy applications: A typical loan takes a lot of paperwork. With a merchant cash advance, you can upload all of your bank account statements, credit card transactions and more in just minutes. The entire process can be completed online from the comfort of your home or office.
Flexible options: When you get a merchant cash advance, the amount you pay each month is flexible. While you have to repay the holdback percentage, the actual amount can vary based on your sales. If you have a slow month, then you get to repay a lower dollar amount.
Bad credit is not a problem: When it comes to credit, most merchant cash advances are fairly lenient. They care about your credit card sales and business history instead of your credit score. While an advance will not help you boost your score, it does give you a funding option if you have bad credit.
Higher limits: The advance is based on how much you bring in each month in credit card sales. You can get an advance for just a few thousand dollars. The upper limit for an advance can be as much as $2 million.
Who Does This Work Best for?
A merchant cash advance is ideal for a company that has a well-established transaction record. If you need cash quickly, then it is a viable option. Keep in mind that the fees can be expensive. If you take longer to repay the advance, the factor rate can quickly add up. Make sure that you know the terms, holdback amount and factor rate before you apply for a merchant cash advance.