Sometimes getting a business loan can be difficult. Since the recession, banks are making it tougher to receive financing. A more and more popular option for business owners is a merchant cash advance.
How does a Merchant Cash Advance work?
A merchant cash advance works differently than a bank loan. The company offering the merchant cash advance is purchasing a fixed amount of your business’s credit card sales. The provider sets a specific dollar amount over the amount of the advance as the charge for the financial service. The amount of the premium and the advance then comes out of the business’s credit card sales at the agreed to percent until the obligation is paid. Most providers prefer to set the term at a year or less.
Benefits of a Merchant Cash Advance
There is no actual due date and no regularly scheduled payment amounts. This is very useful for those months when you are not doing as much business as others. There is no interest rate, only the premium, so you aren’t paying more for the service if it takes you longer to pay. There is also no collateral needed. If a merchant cash advance cannot be paid due to the business closing, the lending company is the one that takes the loss. Unlike with a business loan, you would not be liable. For businesses that are having difficulty getting a bank loan, a merchant cash advance can be a great option to obtain capital at a low risk. In a post recession economy where banks are restricting access to loans, a merchant cash advance can be the financing that a business needs to survive.
Other things to keep in mind about the Merchant Cash Advance
All forms of borrowing money have pluses and minuses. While there is no actual due date, some providers do charge an extra fee for going over the term of the payoff. While a merchant cash advance can help you obtain much needed funds for your business’s survival, it can also be an expensive option. If you compare the cost of interest in a bank loan versus the premium of a merchant cash advance, you’ll see that the cost of the advance can sometimes be quite high. Sometimes more on par with a credit card’s interest rate.
Unlike a credit card, you still would not have the burden of making regular payments as a merchant cash advance is financing based on your receivables. Specifically, the receivables only being the money paid to your business by credit card payments. For short-term financing, the cost is often validated by the reward. However, while a higher premium cost has value for short-term financial needs, paying out a large percentage of credit card sales for the long-term may be detrimental to your budget.
Applying for a merchant cash advance is a simple, quick process. The merchant cash advance provider does not examine your business finances to determine if the rate is something that your business can handle. Though it can be a great way to immediately improve your business’s cash flow, always make sure you are aware of the financing fees and costs when choosing a merchant cash advance.
If you’d like to know more about how we can help you get money for your business, call us for a FREE Business Funding Consultation at (800)416-7713.
Rick Anderson @FundingExpert1
Rick Anderson is the CEO and Senior Small Business Funding Specialist with Small Business Money Solutions. A company that helps small business owners and self employed professionals get the financial solutions they need to GROW and thrive. Rick has been in business for over 22 years, and his company has helped 22,485+ small business owners and counting. Rick has also written a book on small business finance entitled 10 Easiest New Money Sources For Business Owners.
Connect with him https://www.linkedin.com/in/RickAndersonSmallBusinessLoans or if you would like to ask him a question, send it to Rick@SmallBusinessMoneySolutions.com. If you’d like a FREE ‘Business Funding’ Consultation, call him at (800)416-7713.