4 Benefits Of Merchant Cash Advances

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By Catherine Way

Small business owners are always looking for new and exciting ways to grow their businesses.

Staying on top of the latest trends, the top of the line software and technologies, or marketing ideas, is the only way to grow and expand your business, or get left behind.

For those that want to jump on new opportunities have access to fast funding is key!

Many small business owners are wary of merchant cash advances, due to higher interest rates, and unclear funding and approval processes.

“Merchant Cash Advances are perfect for small business owners that need fast funding without the hassle of a bank loan. Merchant Cash Advances are asset-based loans that are perfect for small business that wants to use their future sales today.” – Loren Howard, Prime Plus Mortgages, Arizona Hard Money Loans. 

Merchant cash advances do offer benefits to small business owners that cannot get traditional loans for their businesses.

No Credit Checks

Most banks and credit unions require good or excellent credit scores in order to fund any small business loans, and for those that have scores under 700, getting a traditional loan for your business can seem impossible.

With a merchant cash advance bad credit won’t get in the way of whether you can get an advance, which is a big benefit for many small business owners.

Unlike banks and credit unions, merchant cash advances do not require a credit check in order to apply!

A merchant cash advance is an advance on the credit card sales of your small business. That means that you can get an upfront sum of cash in exchange for a slice of your future credit and debit card sales. There are no credit checks as it is based on the capital of your business, unlike traditional loans that are based on your credit or personal assets.

Merchant cash advances aren’t your standard small business loan, so you don’t have to offer collateral or your credit history in exchange for the loan.

While raising your credit score can take time, with a merchant cash advance you can fund your business quickly.

There’s no risk to your personal assets, you simply use a small portion of your future sales to secure the cash you need today!

This is perfect for small business owners who have bad credit, as they can get approved for a loan quickly and a less.

Small business owners looking to get a loan fast without the hassle love that merchant cash advances don’t need their credit scores in order to fund their businesses.

faster-funding

Fast Funding

Only 1 in 5 small businesses get approved for business loans.

For small businesses in need of cash now, waiting 2-3 weeks is just out of the question.

Merchant Cash Advances makes it easy to get the funding you need, with funding in as little as 24 hours. Traditional loans can take anywhere between 2-3 weeks to approve to small business due to credit checks. Merchant cash advances can fund small business within 2-3 days at most.

That means that with a merchant cash advance you can be approved the same day, and not waiting to jump on new opportunities.

It also means that for small business owners, such as construction companies or retail stores, you can have cash in hand to fund business ventures quickly, such as restocking or purchasing new equipment. There are many costs for small business owners, and being able to cover these costs quickly can be a lifesaver.

Fast funding is essential for small businesses to take on new opportunities to build your business.

Industry Funding

In their first year, 30% of small businesses may fail or change ownership, according to a study conducted by Cornell University.

Many restaurants find it hard to fund their business, and getting someone to ever look at their business may be a struggle. Meeting with banks can be very time consuming, and chances are, might get your business funded.

Thankfully, Merchant cash advances make funding a business in many niche industries easy.

Medical offices may have to wait for payments for insurance companies, auto shops need to restock parts, and retail stores and salons need to stay on top of trends in order to keep their doors open.

All of these businesses need working capital in order to stay and business, and a merchant cash advance makes funding their business easy.

With proof of sales, you can be funded for your business now, and use your future revenue now!

Easy Ways To Pay

Merchant Cash Advances are easy to pay. Depending on your merchant cash lender, you could make daily, weekly, or monthly payments.

Unlike traditional loans which are a flat monthly fee, a merchant cash advance loan is based on a percentage of your debit and credit transactions.

Which means how much you pay varies on how much you made!

If you have a great month and have lots of revenue you can pay off a large sum of your loan, and if you had a bad month, they will only take a small percentage which won’t impact how you do business.

Depending on your lender, they can even set daily auto-payments, which will pay off your loan faster than ever!

This calculator makes it easy to determine what type of small business loan would be best for your business.

Summary:

Merchant Cash Advances are great for small businesses who need cash in order to restock, buy new software and technology, and any other plethora of situations small businesses face.

While there are many different types of small business loans, determining the best loan for your business can be tricky.

There are many benefits for using a merchant cash advance for your small business, but most small businesses love these 4 perks:

  1. Fast Funding: Merchant cash advances can fund in as little as 24 hours, much better than the 2-3 week waiting period from most banks.
  2. No Credit Checks: You don’t need a perfect credit score in order to get a loan for your small business, and a merchant cash advance only uses your business revenue to fund your loan!
  3. Industry Funding: Merchant cash advances understand the nuances of different industries, so you can get fast funding for your niche business easily.
  4. Easy Way To Pay: Daily, Weekly, And Monthly auto-payments are available! Merchant cash advances can be much more flexible than a traditional loan.

Have You ever used a merchant cash advance?

This Article Was Originally Published In Payments Journal.

Pros and Cons of Merchant Cash Advance Loans

Cash advance form on a wooden table.

Understand the nature of merchant cash advance loans, their typical requirements, and what their advantages and disadvantages are.

A merchant cash advance loan is a quick source of short-term financing for a small business merchant with an immediate need for cash. Most advances — plus fees — are repaid in within six to 12 months.

The primary requirement is you must make daily credit card transactions (which is why they are merchant cash advances, i.e., advances to retail, restaurant and service companies).

Additional conditions may apply. These include:

  • $2,500 to $5,000 monthly credit card billings, possibly higher depending on the amount of the advance.
  • Proof of at least four months history of credit card sales.
    If your business meets these conditions, here are the pros and cons of obtaining this type of loan.

Advantages of Using Merchant Cash Advances

  • Unlike with a bank loan, there is no fixed monthly payment, no interest rate or payoff date.
  • There is no collateral requirement. In the event the merchant’s business fails and full restitution for the advance not made, the owner’s assets are not at risk, as they would be with a bank loan. In fact, if a merchant’s business fails and the cash advance is not fully repaid, there is no legal liability.
  • Repayment is performed automatically based on the merchant’s credit card transactions; consequently, there is no possibility of late charges from overlooked due dates that frequently occur with bank cash loans.
  • Almost instantaneous access to funding; advances are typically made within 24 to 48 hours.
  • Better cash flow; if sales are slow for a given month, you pay less to the MCA company because they collect only a set percentage of monthly sales, without any minimum amount required.
  • Minimal paperwork.
  • If you need cash quickly, but don’t qualify for a traditional bank loan, or can’t wait for a loan decision and/or release of funds.

Banks have been stingy with lending to small businesses since the beginning of the financial crisis that began in 2007. While the economy has improved since then, credit availability has not eased up at all. Given a tight credit market, small businesses have to take advantage of whatever resources they can find. Merchant cash advances are a novel workaround to unavailable bank lending.

Disadvantages of Using Merchant Cash Advances

The catch (you knew there was going to be a catch, right?) is that a merchant cash advance is considerably more costly than traditional financing.Technically, merchant cash advances are not considered “loans.” Rather, they involve the purchase and sale of future income. The advance never lasts more than a year, so the firms putting up the financing don’t have to follow regulations on interest rates that traditional lenders are required to follow.

Still, while technically not an interest fee, if you compare it to one, the rate you are paying with an MCA is significantly higher. Tozzi notes that Leonard C. Wright, CPA and Money Doctor columnist, estimates the equivalent APR (annual percentage rate) for a merchant cash advance fee can range between 60% and 200%.

One reason the APR is so much higher is that a bank receives a monthly percentage on the balance owed, not the full amount of the loan. As the loan is paid off and the balance reduced, the interest paid is less. However, a merchant cash advance fee is a fixed charge for providing the advance. That charge can be as much as 30% of the advance. For example, the fee for a $20,000 advance could be $6,000.

Banks are regulated by federal and state laws intended to protect consumers against “predatory” lending practices. MCA providers are not similarly regulated because they are technically buying future receivables, not providing a loan. Consequently, they are exempt from state usury laws that would otherwise prohibit charging fees that greatly exceed industry standard interest rates.

This lack of regulation has led to some unscrupulous practices. These include companies advancing more money than a business has capacity to repay and cases where the cash advance company changed its billing practices without notifying the merchant borrowers.

Other potential disadvantages include:

  • Most cash advance contracts prohibit switching credit card processors; if for some reason you are dissatisfied with your credit card processor, you are stuck with them until the advance is repaid.
  • Encouraging your customers to pay in cash, to avoid a percentage of their sales going to the MCA firm, is considered a “breach of contract” and could result in litigation.

Originally Published by BUSINESS.COM EDITORIAL STAFF – Last Modified: February 22, 2017