Businesses need cash flow in order to keep the services up and running at all times and stay ahead of the competition. Sometimes they are short of cash because sales have not been performing. In such a case, a quick loan is needed to make prevent the business from collapsing. An alternative means of financing is called a merchant cash advance.
A merchant cash advance is referred to as an advanced payment rendered to your business and against its future income. The merchant basically pays your business a large sum of money that’s later repaid through a cut of the daily credit card percentage of the business. Whatever the case may be, a merchant cash advance is meant to help boost the cash flow of any business. However, before you think about going for this option, you need to know more about it.
How It Works
A merchant cash advance, unlike a bank loan, basically funds your business with what is referred to as advanced payment and is paid in percentage bits using the daily credit card income of the business. Usually, a merchant cash advance is paid back as soon as the advance is paid to the business. The amount that is paid back bit by bit is referred to as retrieval rate or ‘holdback’. The percentage can vary from 5% to 20% and depends on the advanced amount issues, the average business credit card sales, and the period given to complete the repayment. Most MCA’s prefer to work with businesses over a fair business period that ranges from 90 days to 18 months and can vary based on the amount of advanced payment rendered. Here are some of the important facts you need to know about a merchant cash advance:
1. You Don’t Need to Have Good Credit to Qualify
When you look at most bank loan terms, having a good credit score is a major requirement regardless of how you intend to use the money. This is not the case with a merchant cash advance since the merchant mostly pays attention to the credit card of the business. In short, what’s mostly considered is the consistency of the business credit card sales, the lengthy period of the business in question and any previously withheld debt payments based on the payment history of the business in the past. However, you need to keep in mind that merchant cash advance providers won’t report your payment commitments to the concerned credit bureaus. As a result, this may not be a viable way to improve on your credit score.
2. Fast Application Process
The thing about most business loans is that the application process can take forever, and this can be tiring at times. However, acquiring a business advance from a merchant can take a short time and is as simple as applying online. Keep in mind that this process may require you to provide any supporting documentation such as bank account statements, credit card processing statements, and business tax returns.
3. Quick Funding
Every business operates on a certain time schedule which means that every minute counts. The bright side about using a merchant provider is that you can get approval within a matter of hours upon your application. Furthermore, you can get the advance just a few days after the approval has been confirmed. This is a big plus for many interested businesses since it allows them to acquire cash as quick as possible. If anything, this can save many businesses by allowing them to cover their payroll or any other unexpected expense.
4. Flexible to Pay
Small business loans render money that has to be repaid in a fixed amount after every month until completion. If you happen to experience a slow month where sales were relatively low, going for a business loan may limit you further based on the payment restriction. This may not be the case for a cash advance since payment terms are strictly dependent on credit card percentage sales. This means that the amount you pay on a daily basis isn’t a fixed one, and the overall monthly charge may vary based on the sales of the month. Therefore, a merchant cash advance provider definitely offers businesses much more flexible payment terms.
At the end of the day, choosing a funding option requires you to choose one that will be comfortable to repay and build your business cash flow regardless. A merchant cash advance does exactly that. You get a loan based on the current sales and condition of your business, allowing you to carry on with business without worrying about your credit score.