What You Should Know About a Merchant Advance
As a merchant, you may be looking for a short-term financial solution for your company. One way that you can get access to cash is by submitting an application for a merchant cash advance.
There are a few benefits of securing a cash advance from a merchant cash advance provider. The application process is quick. Many lenders provide a loan decision and deposit cash into your business checking account within 24 hours.
Another benefit is your cash advance amount will be determined by your credit card receipts. For that reason, merchant cash advance providers won’t require you to provide collateral to secure the advance.
After you complete the application for the merchant cash advance, the provider will promptly review your loan application and daily credit card receipts. If the provider determines that you generate enough revenue to repay the loan, it’s likely that you’ll be approved for a merchant cash advance.
Before you agree to the terms of a cash advance and sign an agreement, you should understand the terms of the loan and how the charges will be calculated. In addition to the principal amount of the cash advance, you’ll be required to pay holdback charges and a factor rate.
What Is a Merchant Cash Advance Holdback?
As part of your loan agreement, the merchant cash advance provider will assess holdback charges. A holdback is a percentage of your daily credit card transactions that are withheld to repay your merchant cash advance.
A merchant cash advance agreement requires you to authorize your lender to withhold these charges from your daily credit card receipts. The holdback charges are automatically deducted from your credit card receipts.
Here’s how a holdback charge works on a typical day if your provider assesses a 10 percent holdback charge. On Monday, your business had $3,000 in credit card receipts. As part of your agreement, the merchant cash advance provider will automatically deduct $300 from your credit card receipts.
Each holdback amount is applied toward your merchant cash advance balance. Since the holdback charge is determined by your daily credit card revenue, the holdback amount will be different each day.
Merchant cash advance providers usually assess between 10 and 20 percent of credit card receipts for holdback charges. Be certain that you are aware of your holdback percentage prior to committing to a merchant cash advance.
Additional factors that providers use to calculate holdback rates include the duration of the merchant cash advance, monthly receivable amounts and cash advance amount. It’s essential that you understand how these factors will affect your business.
Interest Rates and Factor Rates: What’s the Difference?
Traditional financial institutions assess interest rates for their loans. Interest rates are based on credit scores and the type of loan.
However, merchant cash advance providers assess factor rates. There are a few distinct differences between interest rates and factor rates.
First of all, factor rates are higher than interest rates. In fact, some merchant cash advance providers charge factor rates that are in the triple digits. Another thing you should know is interest rate loans are amortized. Factor rates aren’t.
A merchant cash advance includes factor rates in addition to holdback charges. A typical merchant cash advance agreement requires you to repay both.
Is a Merchant Cash Advance Suitable for Your Business?
Making the decision to sign a merchant cash advance agreement shouldn’t be taken lightly. You must carefully assess if it makes sense for your business to make this type of financial commitment.
A merchant cash advance can be a good solution for businesses that require a short-term infusion of cash to take advantage of a business opportunity. However, if you are experiencing a financial problem with no end in sight, a merchant cash advance may not be suitable for your business.
It is common for small company owners and entrepreneurs to experience growing pains when they are developing their business models. In many cases, having access to cash is helpful for smoothing out rough spots. In many cases, getting access to extra funds could prove challenging. Delancey Street sees things differently than traditional lenders and provides Bad Credit Small Business Loans for companies of all types and sizes.
Our Service Offerings
Delancey Street offers a wide variety of financial services for small businesses including business lines of credit, small business loans, merchant cash advances, and other financial solutions. We work diligently with each business owner so that we can understand their situation. With flexible financial solutions, we can help qualified borrowers secure loans as high as $2 million.
Advantages Of Our Services
- Quick Approval Process
- Access to funding within two business days
- Flexible Payment Structure
- All businesses welcome
- Bad credit is acceptable
- Funds can get used however needed
Our application process is simple. Perfect credit is not required. The funds made available through our financial services can get used to cover anything the company needs. Are you expecting a rush season? Use the money to buy new inventory, add staff members, or to make needed upgrades or repairs.
Quick Bad Credit Small Business Loans
Being able to get access to additional working capital through a business loan could be the cash infusion your company needs to get ahead. Regardless of whether you are trying to launch an expansion or you need to even out your cash flow to stabilize your company, you have options.
Before You Apply
Before you take any steps to apply for a bad credit loan, take a moment to assess your needs first. How much money do you need to secure? How will these funds get used? Have you exhausted all other potential financial sources? By answering these questions, you are making the necessary preparations.
Analyzing Your Credit
Ideally, small business loan applicants should have high credit scores to qualify for traditional bank loans and other financial services. In today’s modern world, credit scores get used to determine the terms of the loan, including the interest rate, repayment schedule, and the approved loan amount. Banks, credit unions, and other traditional lenders want assurance the money they loan will get repaid. A higher credit score signals that the borrower takes his financial responsibilities seriously, and he is a good credit risk. Further, higher credit scores help you qualify for commercial lending products and services at better rates and terms.
If your personal or business credit score isn’t perfect, take actions to repair the damages. In some case, this could be as simple as making sure that you pay all your bills on time. It is also a smart idea to review your credit report to check for errors or damaging entries such as collection accounts or liens. If you notice these types of accounts and don’t recognize them, contact the credit reporting agency. Ask them to investigate the entries. By removing inaccurate information, you increase your score over time.
Simplify The Loan Process
In some cases, you may not be able to wait for your credit score to improve to get access to working business capital. In these situations, working with a company like Delancey Street offers you the flexibility and the momentum you need to get ahead of your cash flow requirements. Instead of relying on credit scores to determine potential borrowers creditworthiness, we evaluate the overall financial health of the business. Companies with recent verifiable sales and processes credit cards often qualify for business funding. There is no reason to fail just because of a bad month or unexpected expenses!
Solve Your Cash Crunch Problems Quickly
Need access to working capital quickly? Delancey Street is here to help!