A Merchant Cash Advance also called Business Cash Advance is a short-term lending option against a business’s future credit card receivables. When repaying, a fixed percentage is taken directly from the daily or weekly business sales. The Cash Advance industry is flourishing since traditional lending criteria have become so rigid especially for startups since the Great Recession. Getting a bank loans has become a serious issue for many business owners after the Great Recession.
Getting a cash advance for business is sometimes indispensable, but it’s essential to understand its pros and cons before applying for it. When there’s an expected increase in revenue, cash advance is usually considered as a temporary funding solution. For instance, you’re about to open a new store and for that you need to buy some inventory or labor.
These are many cases where a business anticipates increase in revenue and for that capital is necessary. In the course of uneven and irregular cash flow, you can’t just fund your expenses with your working capital. To support the business growth and generate more earnings, getting a short term funding in form of cash advance always comes handy.
Surely, you have seen tempting offers like no upfront fee, no paperwork, easy online application, and borrow up to $500K. Yes, this can solve your problems but the fact is unless you’re generating more earnings that repay the advance, it possibly will create more problems than it solves. To put it differently: don’t just get a cash advance to fill a cash flow gap that creates an even bigger one.
Before deciding to take out a a cash advance, consider few question like will a cash advance get you more business? Will cash advance facilitate in business expansion? Does your small business really need it? Whether you can generate enough sales to repay the fixed percentage? How far you can work without paying the fixed percentage? Do you establish a high volume of credit card transactions?
The cost of a cash advance is considerable and that could be anything from 20 to 40 percent, based on your risk factors. Conversely, all such risky factors equalize by the fact that cash advance offers real time benefits to businesses including fast and simple loan application, instant approvals, 1 hour decisions, and funding in just few days.
Also before applying for a business cash advance, you will find thousands of cash advance lenders. So, make sure you search well and compare their rates and fees first. Do search for hidden costs and upfront fees. Compare factors like flexibility in repayment and fixed daily/weekly percentage so that you don’t have to involve in compound repayment process that is unsound d with your cash flow levels.
Cut to the chase is if you’re generating sufficient money with the right sales volume, merchant cash advance is your best bet. But you need to play smart and informed before utilizing this financing option productively.