Nowadays, many people experience financial difficulties and struggle with their budgets. But individuals are not the only ones who struggle with their regular bills and emergency expenses. In today’s economy, there are many small businesses that are often going through tough financial periods.
When a business struggles to pay its employees or needs to expand but does not have the funds to do it, getting financial assistance is often the way to go. If you are a small business owner who does not have enough capital to fund your small businesses, a merchant cash advance may be the solution to your problems. Let’s have a look at what a merchant cash advance is, how it works and what benefits it has to offer.
Merchant cash advances – explanation
A merchant cash advance is a financial tool for funding small business. A merchant cash advance is normally a quick, simple and very productive method of small business financing. In order to qualify for a merchant cash advance, your small business should have a credit card sales volume that is easy to predict. Different merchant cash advance providers will offer you various merchant cash advance terms, but overall all it will depend mainly on the stability and volume of your credit card sales.
Normally, the merchant cash advance provider will purchase a certain amount of your future card receipts at a certain discount. After that, the provider of the merchant cash will grant you a loan which can be a maximum amount of $160,000. After that, the merchant cash advance provider will immediately get a fixed percentage of all your future credit cards sales. This will go on until the merchant cash advance loan is fully paid off.
Choosing merchant cash advances as a way to fund your small business can bring you several benefits. Merchant cash advances are normally a pretty quick way to fund your small business. The application process for a merchant cash advance normally does not take more than just two weeks. Many merchant cash providers do not interfere with the financial decisions you make with the money they give you, how to best use that cash in order to fund your business is entirely up to you.
It is true that you may be able to find a less costly way to finance your small business, however, the time you could lose with that method can prove to be more costly over time. Merchant cash advances are a way to:
- get a cash boost for your small business
- create some good opportunities
- try and expand your business as much as possible
How does a merchant cash advance work?
Merchant cash advances have always been a service designed mainly for small business with a general revenue coming from debit and credit card sales. Examples of such business can be retail shops or restaurants. Nowadays, a merchant cash advance is a viable option for a wider range of businesses, such as businesses that do not rely so heavily on their debit card or credit card sales.
The providers of merchant cash advances claim that the product they offer cannot be specified exactly as a loan. What merchant cash advance companies give you is an upfront amount of money in return for a certain part of your future revenue. The repayment of a merchant cash advance can mainly be put together in two ways.
With merchant cash advances, you are able to get an upfront amount of money in exchange for a portion of the future sales of your debt cards and credit cards, or you have the opportunity to get an amount of money that is already repaid by fixed remitting weekly or daily debts from your personal bank account (this method is known as ACH withdrawals). According to different research, this merchant cash advance type is one that attracts the attention of most small business owners and merchant cash advance providers.
The Automatic Clearing House merchant cash advances allow merchant cash advance companies to reach businesses that are not mainly tied to debit card or credit card sales. With merchant cash advances, unlike with some other forms of financial assistance, you make weekly or daily payments instead of making a single payment at the end of each month. That daily or weekly payment includes fees and that process goes on until the merchant cash advance is fully repaid.
How well you can cope with repaying your merchant cash advance is going to determine the amount of money that you are going to have to pay in fees over the whole repayment period. Merchant cash advance companies usually determine a factor rate that ranges between 1.2 and 1.5 and is based on the risk assessments. You are going to have to pay more fees if the factor rate is higher.
Merchant cash advance alternatives
If you are a small business owner, there are a number of alternatives that you are able to explore before making a decision to use a merchant cash advance. If you do not have a collateral that you can use to get a traditional loan, or the speed of the whole process of getting such loan is too slow and you need to act faster, there are many online loan lenders that often offer loans with annual percentage rates and repayments terms that are absolutely competitive with what traditional loan lending institutions have to offer.
After all, no one knows better the situation that you are in and the state of your small business. If you feel like you need financial assistance to expand that business or just to keep it alive, you should do careful research on all the options that are available to you. One thing is for sure, merchant cash advances are often one of the best solutions you can choose for taking your small business to the next level.