Merchant cash advances are different financial products than loans. While this type of financial transaction shares many of the same characteristics, such as giving you money when you need it, a merchant cash advance provides funds based on your business’s credit card sales. We have the means to provide these types of funds to you quickly.
What are the Advantages?
With a merchant cash advance, the advantages include:
• Quick access to the money you’re borrowing
• A streamlined approval process
• Acceptance for those with bad credit
• Being a good option for various businesses
What is the Downside?
The downside to merchant cash includes:
• Fees that are usually higher than other loan products
• The daily cash flow reduction
• The fact that you must repay the loan before paying service providers
When to Consider a Merchant Cash Advance
Consider a merchant cash advance when you need funds for your business right away. You can use these funds for everything from paying past due bills to covering a renovation. This page will give you a thorough understanding of:
• The ins and outs of merchant cash
• The pros and cons of getting one
• Who benefits from merchant cash
• When to be careful about taking out merchant cash
• Merchant cash alternatives
The Ins and Outs of Merchant Cash
Instead of being set up as a loan, a merchant cash advance is funds against your future earnings. With merchant cash, the lender will give you a lump sum that you’ll repay automatically through your company’s daily profits. The percentage that you’ll pay is called a holdback, and it ranges from 5 percent to 20 percent based on the loan amount, credit card sales and repayment terms. These terms are usually from 90 days to 24 months. Repayment starts as soon as you receive the funds.
Merchant Cash Pros
Streamlined application process: You can apply for a merchant cash advance online. The application process is set up to accept uploaded documents including your business tax returns, credit card statements, bank account statements and any other documents that may be needed.
Quick Funding: Super-fast funding is another pro of getting a merchant cash advance. Most providers deliver an approval decision in just a few hours, making it ideal for time-based situations like payroll or dire business expenses.
Credit Isn’t Considered: When borrowing funds through a traditional financial institution, the lender will likely require you to have a good credit score. This isn’t the case with merchant cash advances because these providers consider the consistency of your credit card sales and the amount of time you’ve been in business.
Collateral Is Not Required: Traditional lenders often require collateral when you apply for a loan. Collateral decreases their lending risks. With merchant cash, this is not a requirement.
Flexible Payments: With a traditional loan, you’ll be paying the same amount to the lender. While this provides consistency, it can be a problem if you’re facing a tight month financially. Merchant cash advances are a percentage of your credit sales, which means that your payment amount won’t be more than you’re bringing in.
High Advance Limits: The amount provided through merchant cash can be high if you need the funds. They generally range from just a few thousand dollars to $1 million or more. Merchant cash advance providers have more leeway, allowing them to be flexible and give you more.
Who Should Consider a Merchant Cash Advance Solution?
This type of transaction is best for businesses that need cash right away and have solid credit card transactions. Restaurants or retailers are ideal candidates as are new businesses that have a good start with credit card transactions.
Why Businesses Should Use Caution
The cost of a merchant cash advance can be prohibiting. Don’t take one out until you’ve assessed the costs thoroughly.
About Factor Rates and Traditional APRs
Traditional loans operate with annual percentage rates while merchant cash advances use a factor rate, which is the how the fee that you’ll be paying to the provider for the funds is determined. This fee is typically from 1.1 to 1.5. The number may seem low, but it’s usually just misunderstood.
If you accept a merchant cash advance for $50,000 with a 1.3 factor rate and a one-year term, then your total repayment will be $65,000. A first glance would indicate an APR of 30 percent, but it may be higher due to the holdback amount, which is the sales percentage that is applied to your advance. It is usually 10 to 20 percent and fixed until your advance is repaid. If your holdback rate is 15 percent of your daily credit card transactions and your sales come to $35,000 for the year, then you’ll pay $175. With a year repayment term, this makes the repayment percentage more than 15 percent. If you make $40,000 or more a month in sales, then that APR becomes more than 60 percent.
The difference between a traditional interest rate and a holdback amount is that interest rates are amortized during the cash advance period.
Staten Island, NY Merchant Cash Advance Alternatives
A term loan is a good alternative. Like a mortgage, this lending product is traditional with APRs and one to 5-year repayment terms. Business credit cards are another good option.
Should You Get a Staten Island, NY Merchant Cash Advance?
If your company needs money now, then it may be good option. Just be sure to consider the costs before applying for one.