Merchant cash advance, also known as business cash advance, is a great alternative to regular loans as well as a great tool in managing your business’ finances. Merchant cash advance differs from regular loans because it can provide businesses with immediate cash by letting the business sell a portion of future credit and/or debit card sales. They have high approval rates and applications are processed faster than regular loans, and do not focus too much on credit scores or ask for collateral. If done correctly, merchant cash advances can eliminate a business’s financing dilemmas.
However, while a merchant cash advance can help business owners solve liquidity problems by providing capital when the business needs it most, it is not for everyone. Before applying for a merchant cash advance, the following steps must be considered carefully:
- Evaluate the repayment schedules in view of your business strategies. A merchant cash advance has a unique repayment schedule. With a merchant cash advance, business owners don’t have fixed payment schedules. Merchant cash advance lets the borrowers pay the advance by subtracting a fixed percentage on the credit or debit card sales until the advance plus the premium, or fee is fully paid. Does this repayment scheme coincide with your business strategies in the long run?
- Often the merchant cash company requires you to switch to another credit card transaction provider? Some merchant cash advance providers are partnered with a specific credit card transaction company to ensure you receive better rates. Switching credit card transaction provider involves costs that must be taken into consideration. Can you justify the cost of switching your credit card transactions provider?
- Can you obtain the amount you need from other sources that are less expensive? While a merchant cash advance is a great alternative to regular loans, it is also a more expensive source of funding due to the fact that it is a riskier loan product.
A merchant cash advance is designed for businesses with strong credit and debit card sales like restaurants and retail stores. It is perfect for businesses and business owners who don’t usually qualify for regular loans. Business owners with bad credit scores can try applying for merchant cash advance as long as credit card sales and the lifetime of the business meet the minimum requirement.
A merchant cash advance can be an excellent source of capital for business owners because the proceeds from a merchant cash advance can be used for other business purposes such as business expansion. Hence, many people highly regard merchant cash advance as one of the keys towards a business’ financial freedom.