What Is a Merchant Cash Advance?
A merchant cash advance is a funding solution for small business owners who accept credit card payments or has some other payment or receivables to get a merchant cash advance often flowing through the business’ account.
A merchant cash advance isn’t a loan, however rather an advance based on the future sales or credit card sales of a business. A business can apply for a merchant cash advance and have an advance deposited into its account quickly.
The lenders of merchant cash advance examine the risk and weight credit standards in a different way than a traditional bank might. A merchant cash advance lender looks at the daily receivables or credit card receipts to determine if the business will pay back the advance in a well timed way. Mostly, the small business is selling a part of its future credit card sales to get the capital instantly.
Merchant cash advance rates are somewhat higher than any other small business funding product. A cash advance lender will approve an advance for a small business that might not make the grade for a small business loan; however has stable credit card payments. If you are looking to get the cash advance, you need to make certain that you understand the terms being offered.
How a Merchant Cash Advance Works?
A settlement is made between the cash advance lender and small business regarding the amount of cash advance, repayment charges, and holdback percentage. Once the cash advance settlement is made, the advance amount is transferred to the business’ bank account in exchange for future receivables or credit card receipts.
A set percent of the daily sales or credit card receipts are withheld to pay off the cash advance. It is also known as “holdback” and will continue until the advance is fully paid. Access to owner’s merchant account eliminates the collateral requirement for a traditional loan.
Due to the fact that in this setting, the repayment is based upon a percentage of the daily balance in the merchant account, the more transactions a business does, the quicker they’re able to pay off the advance. And, if the transactions be decreased on any given time, the draw from the merchant account will be much less. This indicates at some point of slow business, the repayment is related to their merchant deposits.
Loan & Repayment Costs
A small business that uses a cash advance, according to several cash advance offers, may pay back 20-40% or even more of the borrowed amount. This percent is regularly viewed as a factor rate, which would likewise be 1.20 to 1.40. The repressed percentage is primarily based on:
- The amount of cash advance a business receives
- The repayment term
- How large the monthly receivables are
How Merchant Cash Advance Is Right for Your?
A merchant cash advance is a fast funding program for businesses that requires quick capital access, has good enough cash flow through their account daily to make repayments on the advance, and the purpose of the loan can provide good reason for the potentially excessive expense of the cash advance.
The approval time for a cash advance can be anywhere from an hour or two to a couple of days, but it depends on the lender. And once the application is approved, you can get the funds in your account in just 2-3 days. The cash advance application process is not as difficult as the traditional loans, which makes the merchant cash advance approval process a faster funding option. Here are five applying steps a business needs to take:
Step #1: Apply For Cash Advance
The cash advance application is normally 2-3 pages and will require your social security number, business tax identity, and some other information about your business.
Step #2: Provide Documents
You will possibly be asked for three months or more of credit card or payment processing information as well as bank statements.
Step #3: Get Approved
The merchant cash advance could take almost 24 hours to be approved.
Step #4: Set Up Or Switch To New Credit Card Processor
The cash advance can additionally require the small business to switch to new credit card processor. It may be problematic to switch processors; however at times it is essential part of the approval for most of the cash advance lenders.
Step #5: Get Funded
The cash amount from merchant cash advance will be deposited into the account and repayment by the use of merchant account will automatically start.
Merchant Cash Advances FAQs
Where Can I Use A Merchant Cash Advance?
There are no limits on the use of cash advances. It is up to you to find where you need cash the most. As a business owner, you can better understand what are the weaknesses and strengths of your business.
What Is The Cost Of Money?
Actually it varies from business to business. Normally the lender will evaluate things that are related to your business such as your experience in the business, time in business, industry you are doing business in as well as credit/debit card volume.
Who Can Qualify For A Merchant Cash Advance?
Merchant cash advances are offered to almost all types of businesses. However normally businesses who wants equipment leasing, and have been in business for at least 1-2 years, have not filed for any bankruptcy and don’t have any tax liens.
How Much Time It Will Take To Be Approved And Funded?
The real blessing with this type of loan is the approval process is quick. The approval process will take as little as one hour and the funding will be done in just 5 business days.
How Soon After Funding Can I Get Another Advance?
Once you paid almost 50% of the initial cash advance amount to the lender, you can apply for another. Normally most of the business will return for additional funding.