What is a Merchant Cash Advance?
A Merchant Cash Advance is similar to a traditional loan, but it’s based on your ability to repay the loan amount with your future credit card sales. Unfortunately, there are many scammers out there who prey on small business owners so it’s important for you to do your research before accepting any offers.
How does it work?
When you receive a cash advance, the money is deposited directly into your bank account. When your credit card sales go through and get processed, the lender will take a portion of it (usually around 80%) to pay back the money they lent to you and charge interest on top of that until the full amount has been repaid. One thing to note is that many lenders are willing to provide up to $100,000 in financing which can be a huge relief if you’re struggling to get financing elsewhere.
Are there any downsides?
The biggest downside definitely has to be the high interest rates that go along with this type of funding. You also need to make sure that you have a detailed repayment plan that takes into account possible slow sales periods. Keep in mind that just because you have the money doesn’t mean your customers will spend it so being prepared for potential slow sales is key. If you can’t pay back the advance when it’s due, there are penalties and fees associated with this so make sure to carefully review the terms of your contract.
What are the benefits?
The biggest benefit has to be the ability to quickly receive financing when you might not qualify for traditional loans or lines of credit. This can come in very handy during slow sales seasons and will allow you to stay afloat financially which is obviously a huge plus! Many lenders also offer very flexible repayment options so it’s not as scary as you might think.
Who can apply?
Merchant cash advance lenders will usually take a look at your business financial statements to determine whether or not they are willing to work with you. They also want to ensure that you have been in business for at least 1 year but this is not always the case. If you’re not able to get approved for a loan because of poor credit or other factors, this could be an option worth exploring further.
Conclusion
A Merchant Cash Advance can definitely come in very handy if you find yourself struggling financially due to low sales volumes. Just make sure that you are fully prepared to pay back the advance on time and know the terms of your contract inside out. If you’re careful, this can be a great financial solution to help keep your business healthy and thriving!
