Owning your own business is a risky venture, particularly in this day and age of financial insecurity. However, the reality is that with so many people being made laid off from their jobs, those who feel empowered by this and start up their own business deserve all the help they can get. A merchant cash advance is one way to fund and keep you business afloat. This will allow you to stay in business and not have to lay anybody off either. More and more lenders are offering merchant cash advance options as an alternative way of lending. This is mainly because bank loans are very hard to get nowadays, with banks being very reluctant to part with their money, but also because a business loan from a bank often doesn’t quite meet the needs of a small business. A merchant case advance is a very unique method of funding. Basically, a lender will buy your future credit card sales. As such, it is not a loan. This means that you don’t pay interest rates, but you pay things such as a payback rate and a discount rate. These types of advances are best compared to factoring, only they are based on sales that have yet to take place.
What Is a Merchant Cash Advance?
Lenders who provide merchant cash advance options will provide a small business owner with a cash advance. The business owner then agrees to pay this sum back with an additional fee by giving the lender a daily percentage of all sales that take place on their credit cards (usually visa and master card), until the amount has been paid back in full. The percentage that has to be paid back will generally not be more than 10% of the daily gross sales, but it is mainly based on the monthly volumes of credit card sales that a small business has. Usually, the lender will require the advance to be paid back within six to nine months. However, this is not always fixed and can often be very flexible. Very often, in order to be eligible for a merchant cash advance, business will have to change the credit card processor they use. This way, the advance is paid back automatically whenever a sale is made. It is possible to pay back more as well, which can be particularly useful for those periods of time where a business has increased sales. A merchant cash advance really is very different from traditional bank funding opportunities. Basically, a lender buys money from the small businesses. Because getting cash through banks is so incredibly difficult, this really is a fantastic opportunity. They are mostly available for businesses that are involved in retail, restaurants, and store franchises. This is because these types of businesses mainly use credit cards for their sales.
The Benefits Of Merchant Cash Advances
So what are the benefits of opting for a merchant cash advance? Well, firstly, the money is generally available much quicker than through a bank loan. Furthermore, the advances are usually unsecured, meaning that you don’t have to put up any collateral. Most lenders who provide merchant cash advances will advertize that the money will be available within ten working days or less. Banks, however, take much longer to pay out their loans. Furthermore, bank loans have fixed interest rates, regardless of how much money a business makes. With a business cash advance, however, if sales go down, the amount of money that is paid back also goes down. Hence, a business’ cash flow is never negatively affected by heavy repayment terms. This is particularly important for businesses that experience tremendous ups and downs in their cash flow, in particular seasonal businesses.
Of course, bank loans also require a fixed set of payments to be made each month on a set date. If your business has not made any sales, then the payment still has to be made. With a merchant cash advance, however, the payment is a percentage of your actual credit card sales. This means that if your sales grow, you will pay your loan back quicker. If you business is stagnant for a while, your payments will drop and the period of repayment will be longer. However, it means that there is no great unnecessary strain on your profits. Last but not least, because these types of loans are unsecured, in the unlikely event that something goes wrong, you will not lose your personal assets. This is an incredibly important factor for many business owners who worry about being personally affected by business losses.
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