At present, small business owners have unique areas they can run to whenever a financial disaster hits or if there’s a need to expand the business. A couple of years back, small business owners could only run to banks for funding and at present getting a bank loan has actually become quite complicated given that most of the banks only provide funding to businesses who’ve flawless credit scores. Due to the fact the issue of personal or business credit score was introduced, many small business owners have been missing out on traditional bank loans.
Because of this, business merchants had to turn up with a new solution to assist small business owners get the funding with challenged credit. The best thing with a merchant cash advance (MCA) is that your credit isn’t considered as a major factor in granting you a loan.
A business cash advance is an amazing alternative to traditional funding for small and medium sized businesses. By purchasing a part of your business’ future credit card sales at a discount, a merchant cash advance offers cash on your future sales. The repayment is simple as the lender takes a small part of your future credit card sales as repayment.
- Been in business for at least 6 months
- Accepts credit and debit cards
- Minimum $5,000 a month in credit card sales
- 4 months of credit card statements
Here are some of the excellent attributes of a merchant cash advance:
- Cash Flow Friendly: Because you pay a percentage of your credit card sales, your repayment fluctuates with your own cash flow; in case the sales are lower you are repaying much less!
- Quick Funding: Approvals are usually issued on the same day and the businesses are normally funded as quickly as 24 hours.
- High Approval Rate: In contrast to conventional financing personal credit rating plays an important but small part in underwriting model.
- More Capital: Most of the times you have access to additional working capital every 3-4 months
A cash advance for merchant is a suitable and quick way to get your small business the working capital it requires. By buying a future portion of your credit card sales, a cash advance lender will offer your small business with advance cash.
The cash advance process is designed to get you the funding your small business needs without difficulty and speed; a cash advance is commonly repaid in less than a year. With a set small percentage that works with the flow of your small business, repayment is easy.
Merchant Cash Advance Versus Bank Loan
Qualifying for a traditional bank loan in current economy has become very difficult and in case you do not have outstanding credit – absolutely not possible. Different conventional resources of capital which include home equity loans and credit card loans are no longer options for many business owners. Consequently, a merchant cash advance is a smart funding option.
RISKS YOU MUST WATCH OUT FOR
High Annual Percentage Rates
Sometimes, the annual percentage rate of merchant cash advances runs to triple digits, something small business owners should be concerned about. The APR is the total borrowing cost along with all of the costs and interest. Estimated Annual Percentage Rate on a cash advance ranges between 70% and 350%, which is quite high.
The Higher The Sales The Higher The APR
Many times a cash advance is repaid in terms of the percentage of your daily credit card sales. This indicates that the repayment will depend not only on the fees and rates paid; but additionally on how quickly you repay the cash.
If your credit card sales are not that good, you will have to pay back the cash for a long time compared to a business owner who has very high daily credit card sales.
Early Repaying Isn’t Helpful
Every other unsatisfactory characteristic with merchant cash advance is that the factor rate is steady regardless of whether you pay back later or earlier. With average business loans, the sooner you pay back the lower the interest rate; however with a merchant cash advance, the total amount is the same no matter how long you take to pay back the loan.
Before applying for a cash advance, search for merchant cash advance companies list and apply to those with good merchant cash advance reviews. The merchant cash advance rates can vary for every lender, so read the fine prints carefully before selecting a cash advance lender.