When your company needs a bit of help covering expenses, a merchant cash advance may be your best bet to get back on track. This is not a loan, but rather an advance against future income, so it will have different pros and cons than a traditional line of credit or loan. For instance, it can be easier to apply for an advance than a traditional loan, but the fees may be more expensive.
How It Works
The provider of this type of cash advance gives you a lump sum which is then repaid through a percentage of your future credit card receipts. This repayment begins automatically after you receive the funds and can continue for anywhere between ninety days and eighteen months, depending on the size of the advance. The amount that you can get from an advance depends on your average credit card sales.
Pros
Some of the benefits of a merchant cash advance are the straightforward application process, flexible payments and quick funding. Because the companies who offer these advances have streamlined the process, you can fill out the application online and upload any necessary supporting documentation in minutes. Because the payments are taken out as a percentage of your credit card receipts, it is as flexible as your business day. This means that if you have a slow day you will not have to scramble to make your next payment. The approval process is also quick and easy so that you can get the funding that you need, when you need it.
Cons
The biggest downside to this type of funding is that it is not actually assigned an annual percentage rate because it is not a loan. This can lead to an expensive way to get funding, especially if you have to take an advance on a regular basis or have a longer repayment term. Advances are assigned a factor rate between 1.1 and 1.5 percent, meaning that you can end up paying at least one and a half times the advance amount depending on how much is withheld from each day’s receipts.
A merchant cash advance, when approached properly, can be one of the best ways for your business to get back in the black. If you do your research into the various companies offering advances, the terms and percentages involved and even the average credit card receipts for your company, then you can take the most advantage of this funding type.
