If you’re a business owner you are more then familiar with what business loans are but there’s a chance you might’ve heard of another probably lesser known source of alternative finance which is merchant cash advances. What is a merchant cash advance? A merchant cash advance for those unfamiliar with the term is an alternative source of funding for businesses that merchants can take advantage of when they can’t get funding from banks or the funding itself can’t fulfill the needs of the business. There are a couple of pros when it comes to using a merchant cash advances over traditional financing from banks one of which being that the premier is more flexible and does not require as much paper work as the latter and you get the funds much faster. Merchant cash advances are purchased future credit card receivables so how it works is that the amount that you owe is taken in small increments from profits generated by future sales through your credit card.
There are a couple of problems that exist when it comes to applying for funding from a bank. First being qualifications as some establishments are stringent about meeting a certain criteria that before you can apply for them. They require collateral through personal or business assets and are inflexible when it comes to how you’re suppose to use the funds and how you’re suppose to pay it back. This is where merchant cash advances come in to solve these problems.
For merchant cash advances there is no requirement for a business to sign a personal guarantee and the approval process lies not in your personal credit but that of the business. The credit card processing volume of your business determines approval and the advance is usually paid back within a year. The time it takes to get the funding could be as quick as a week and off course there is very little paper work involved. Merchant cash advances have much more convenient payback method. When your business makes sales through credit card transactions a fixed percentage of the sales is the amount that is going to be repaid and given that it is done automatically the person running the business is not required to write a check. The fixed amount also changes during periods of high or low sales too going down during slow sales days and vice versa on periods of high sales periods. Bank funds however require that you make the repayment regardless of how well or not your business is doing and depending on the terms a penalty fee is enacted on late payments. With this in mind merchant cash advances are much more fluid when it comes to the money that is going in and out of the business. Given the freedom that merchant cash advances provide when it comes to what you can spend it on you could use it for anything you want as long as it is not collateral so because of that you can use it for much needed upgrades in any operating system in your business or to buy extra equipment, inventory basically whatever you see fit to your business.
Paying back merchant cash advances come in two payment rates the first being a factor rate which is small decimal percentage like 1.15 that could change to 1.3 for example and the full repayment amount would be the factor rate multiplied by the borrowing amount. Another thing to add when it comes to repaying a merchant cash advance is the fact that the first method does not have an interest rate as there is no time frame to repay the full amount. The second method is taking a daily percentage repayment option. It is a s simple as it sounds as you decide to take a daily percentage from the sales revenue of that day and have it taken out from the total borrowing amount. For example if you borrow $ 12,000 you would have to pay back $13,800 because of the factor rate and if your total sales for day one of your business is $1,500 and you have a daily percentage of 11% you will have to pay back $ 165 from that day which is taken from the $13,800 total and that amount could change the next day.
So with all of this in mind what alternative finance source you would use to fund your business? If you’ve decided that a merchant cash advance is the right type of funding for you then the next step is finding a place that offers cash advances to small businesses which luckily are not too hard to find. Only you can decide what type of financing you want your business to have but if you had the option of paying a funding amount with a inflexible payment plan, stricter rules when it comes to how you’re suppose to spend it and charges a fee if you’re a little late to choosing a another source with a more lenient payment option, quicker approval time for payment and doesn’t require as much paper work and doesn’t tell you how to spend your money wouldn’t you choose the lighter option?