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When it comes to running a business really well many factors need to be in place. One of the single most important is the use of capital. Capital is often the very foundation of any business endeavor. Working capital allows the business owner to make sure that the business is in good shape. They can hire employees with ease, create an advertising campaign, rent office space and lease all the equipment they need. While many business owners have a certain amount of working capital, there may be times when they need to have access to more capital to keep the business afloat. In that case, it can be useful have help from many sources of financing. One highly valuable modern source of financing is the merchant cash advance.

Many Business Owners Turn to Merchant Cash Advances

The issue is, a merchant cash advance can be harmful to your business, if the funding is not taken in moderation. Merchant cash advances are high cost programs. The interest rate is high, and if you aren’t careful, you could quickly become over-leveraged.

What are the most common reasons business owners start suffering?

  1. Profits go down – If your % profitability goes down, your margins contracts, and pretty soon that 30-60% APR high interest funding you took is crushing you.
  2. Unable to deploy cash – This is the most common reason. If you take the money and sit on it, the high interest rate of the funding will literally crush you. The worst thing possible is not deploying the money to make more money.

What are your options when you think you’re about to default on a merchant cash advance

Defaulting is a dangerous course of action. Some lenders use COJ’s in order to protect their financial interests. Virtually all lenders will engage in legal action if needed to ensure repayment of the funds. Having said that, you do have options in order to prevent defaulting on a merchant cash advance.

1. SBA Loans – SBA loans are a great way to improve your business cash flow. SBA loans come with a monthly payment, and a term of 2-5 years, which means you can pay off your high interest merchant cash advances with an SBA loan and stretch out the financing over an extended period of time. Instead of a daily payment, which is crushing you, now you have one monthly payment. In addition, you now have an opportunity to grow the business because you’re able to lower your monthly outflow of cash due to a longer term.

2. Real Estate Loan – If you have real estate, you can get a real estate collateralized loan. This helps you get a 8-10% APR loan, which is collateralized by real estate. This type of loan is fantastic because the rate is fairly flexible, and in addition, you can extend the term as well. Often, many business owners love taking a hard money loan because they only need to make interest only monthly payments, and the principal is paid lump sum at the end of the term of the loan. Moreover, because you’re offering real estate as collateral – people with a lower credit score can qualify for a real estate collateralized loan.

Many Useful Advantages
A merchant cash advance has lots of great advantages that has made it the option for choice for many businesses. Many other types of business loans require the person to go through a highly detailed application process. They may need to present extensive documentation going back several years. They might also need to demonstrate they have the finances to pay back the loan at any time. These steps can be cumbersome and difficult to follow.

The need for collateral can also mean that the business owner’s personal assets such as their home is at risk if they are unable to pay back the business loan. They can also be hard to for a business owner to quality for if they have had credit difficulties in the past.

Some businesses face busy periods and times where business may be slower. The merchant case advance allows the business owner to work around such periods and still have the cash they need even when there may be a temporary downtrend in the business.

The Process
A merchant cash advance means the company owner applies for funds. The company funding the cash advance agrees to provide them with the funds they need. In turn, the company owner agrees to pay the company financing the merchant cash advance a certain percentage of the money they take in from debit and credit cards each day. This is done via the business owner’s bank account. In turn, the business owner has access to a ready source of cash they can also access via their business bank account. Many business owners use credit and debit card payments as the standard form of payment for many goods and services. This is especially true in certain industries that rely on a changing group of customers such as a restaurant owner or other small, locally based businesses.

Companies submit an application to the merchant cash advance company. In turn, the firm will examine the owner’s credit card payments statements. The goal is to see if business owner has a certain level of credit card business in a certain time. A business owner may also be asked to present other evidence of their fiscal history such as the company’s working capital. Most such applications take place largely online rather than in a formal office setting. This makes the application process quick and easy without the need to take a lot of time out of the day to complete it.

Using and getting cash from the merchant cash advance is very easy. The money is repaid via the business owner’s daily receipts. This allows the business owner to make the best use of their best asset: their daily hard work. The cash advance can also cover small amounts of money. There’s no need to borrow lots of money if the owner does not want it or need it. In short, this form of business help has a lot to offer the business owner right now.

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Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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