In the state of Massachusetts, one of the options for small business owners who are in need of capital is a merchant cash advance. When your business needs funding, this may be the best option to obtain it for growing the business or temporarily enhancing cash flow. It’s important to know what a merchant cash advance is, how it works and how to obtain it. There are also a number of advantages you should know about when you need one for your small business.
What is a Merchant Cash Advance?
There is a misconception that a merchant cash advance is a loan. It is not a loan but is funding that a financing company gives to a small business owner to help them to fund their business. It is granted in exchange for a percentage of sales from credit and debit cards, in addition to a fee. Small business owners are easily able to quickly obtain merchant cash advances without having to put up anything for collateral. They can also be obtained even if your credit is less than perfect.
How Does a Merchant Cash Advance Work?
A merchant cash advance is given by a financing company in a lump sum amount. Repayment is done automatically through a portion of the small business’ sales that are done through credit and debit cards. The percentage used to pay back the financing company is known as the retrieval rate, which can be anything from five to 20 percent depending on the size of the merchant cash advance you get, the card sales your business has and the repayment period. In addition, the terms can be anywhere from 90 days to 18 months long depending on the amount of money you receive for your merchant cash advance. The repayment period also starts immediately upon receiving the funds.
Generally speaking, the amount you can borrow from a merchant cash advance is determined by your business’ average credit card sales. The financing company determines an amount for which your small business is eligible by going over your receipts from the last three to six months. On average, a merchant cash advance can range from 50 to 250 percent of the credit and debit card transactions of your business.
Advantages of Merchant Cash Advances
There are a number of benefits you can get from getting a merchant cash advance for your small business. They include the following:
• Easy application process: Merchant cash advances have easy application processes. This differs from lines of credit and small business loans, which are alternatives for getting funding for your business.
• Quick funding: You can receive funds from a merchant cash advance quickly. Financing companies can decide within hours to provide you with the funds in only a few days.
• Great credit is not required: In order to qualify for traditional business loans, it’s necessary to have good or excellent credit. However, with a merchant cash advance, that’s not a requirement and approval is instead determined by your credit and debit card sales.
• No collateral necessary: You don’t have to put up any property as collateral when getting a merchant cash advance, something that’s a requirement for a traditional business loan.
• Flexible payments: Merchant cash advances allow for flexible payments. You don’t have to worry about fixed payments, which come with regular business loans.
• High borrowing limits: A merchant cash advance gives more leeway in how much you can borrow. Amounts can be higher than what banks offer for a traditional loan, especially if your credit is not excellent.
Best Candidates for Merchant Cash Advances
Generally speaking, the best candidates for a Massachusetts merchant cash advance are small businesses that require fast cash and have a solid history of credit and debit card sales. Restaurants and retail stores are ideal candidates. New small businesses that have not been in operation for long but rely heavily on card transactions would also be well-suited for merchant cash advances.