A merchant cash advance is not a loan. Well, at least not technically. When your business receives a merchant cash advance, you’re making a trade where in return for a percentage of your daily credit card and debit card sales, plus a small fee you, will be given a cash advance that allows you to fund your business. Merchant cash advances are a simple way for a business to get to the cash it needs without putting anything up for collateral. This process works even for business owners who do not have the greatest credit score.
Balancing the Pros and Cons
As with any financial decision, it is good to take the time to balance the pros and the cons and then see what’s going to be right for your business.
One of the pros of using a merchant cash advance is that your business is able to get quick access to the funds that you need. The approval process for getting these funds is a lot easier than it would be to go to a traditional bank and try to get a loan. Additionally, you will be able to get some type of advance, even if you have bad credit. Finally, if your business accepts payments via credit or debit cards, this loan is suitable for you regardless of the type of business you are in.
There are also some cons that you want to keep in mind. For example, although it is easier to get a merchant cash advance than it is to get a traditional loan, the fees that you pay are going to be higher than those with a traditional loan. Additionally, you’re going to have less flexibility if you want to change merchant service providers. Finally, since your credit card receipts will be deducted based on the agreed-upon amount every single day, you’re going to have a reduction in your cash flow as you are repaying the advance.
Do You Qualify?
After looking at the pros and cons of merchant cash advances, the next question to ask yourself is whether or not you qualify. In order to do this, you need to look at your current financial situation. Does your business have a lot of collateral that could be used to get a traditional loan? Is your business relatively new and because of that you do not have an extended business history? Is your credit rating lower than ideal? If you answer yes to one or a number of these questions, then merchant cash advances might be the solution that you need.
With a merchant cash advance, the eligibility standards are usually kept relatively low. This provision allows small businesses that may not qualify for traditional loans the opportunity to get the financing that they need.
You will especially benefit from this if you have a business that takes in a large portion of revenue via credit card payments. An example of this type of business would be a retail store. With retail stores, the vast majority of your customers are going to pay with a credit card as opposed to cash. Another example would be a restaurant. It is becoming less common for people to purchase things with cash at a restaurant and more common for them to use their credit or debit card.
Businesses that fit into this scenario may see a merchant cash advance as a way to get short-term financing. They can get the working capital that they need, which in turn will allow them to make necessary payments, increase their inventory, and cover unexpected expenses that may arise.
How Can I Apply?
The process for applying for a merchant account is fast and easy. One of the reasons why it is so fast is because the advance is paid back from your daily credit card sales. Before the advance is given, a merchant cash advance company is going to examine your credit card statements to make sure that you have a sufficiently high volume of business. You may also need to provide your credit card score and your bank statement.
The application can usually be done online. Most applications have the chance of being approved the same day. It is good to remember that since the advance is being provided quickly, you’re going to pay a higher rate for the money than you would with almost any other money advance in the capital market.