Are you a small business owner looking for fast and adaptable funding options to improve your cash flow? Then, a merchant cash advance can certainly help. This modern financial tool is tailored to offer small businesses the capital without the complexities associated with traditional loans. Today, we will understand what is a merchant cash advance and whether your business should get one.
What is a Merchant Cash Advance?
A merchant cash advance is funding based on the volume of your total credit card sales. Either your credit card processor or a third-party lender advances your business money, which the lender then takes from your future credit card sales as a percentage.
Rather than borrowing money via a traditional loan, your business can borrow against its future by “repaying” the advance by way of automatic deductions from credit card sales. Because small and medium-sized businesses experience challenges securing capital, a cash advance is a solution to help sustain businesses, as well as to help businesses grow.
Cash Advance vs. Loan
Unlike loans for which your business makes a monthly payment, a cash advance repayment is based on your credit card sales. Because a fixed percentage of your credit card sales are deducted daily, your payments depend on your sales. If you have lower sales, you’ll have a lower payment versus a predetermined loan payment due at the end of the month, whether you had a lot of sales or not.
And because cash advances are not regulated in the same manner as traditional loans, your business will likely find it easier to qualify for a cash advance. If you’re looking to grow but don’t qualify for a traditional loan, a cash advance is a great option for your business. Cash advances don’t require collateral as loans sometimes do.
While lenders set an amount of time within which a business repays a loan, there is no set time for a cash advance repayment. Cash advances are repaid in daily (weekly or monthly) payments as a percentage of your credit card sales until the advance is paid in full along with interest. Usually, it takes a business six to 12 months to repay the advance.
Speedy Funding
The biggest advantage of cash advances is the speed with which your business can access funds. Within days, your lender can provide your cash advance. If you need capital quickly, your lender can fund your cash advance in less than a week. Depending on your daily credit card sales, your business can qualify from $20,000 to several hundred thousand dollars in funding accessible in just days.
Lender Requirements
While requirements may vary by lender, in general, you will qualify for a merchant cash advance if your business has been in operation for at least a year if your business processes a thousand dollars per month in credit card sales, and if your business needs at least $10,000 in funding. Check with your credit card processor for additional criteria, including a minimum amount of monthly credit card sales.
Host Merchant Services Cash Advance
Providing clients with a speedy cash advance with little documentation, Host Merchant Services offers a merchant cash advance solution. Unlike a loan, your business’s cash advance has no restrictions on use. 90% of Host Merchant Services clients qualify for cash advances. Your business can partner with Host Merchant Services to access the best merchant cash advance now for an investment in your future.
Pros and Cons of a Merchant Cash Advance
Merchant Cash Advances offer businesses a quick injection of funds without collateral. One major advantage is the fast approval process, providing access to cash within days. This can be crucial for businesses needing immediate funds for emergencies or opportunities. Additionally, repayment fluctuates with sales volume, which can benefit companies experiencing seasonal fluctuations in revenue.
On the flip side, merchant cash advances come with higher fees and interest rates than traditional loans. These costs can add up over time, potentially cutting into profits significantly. Furthermore, if a business experiences a downturn in sales, they may still be required to make payments based on their previous revenue levels.
While merchant cash advance has their benefits in terms of speed and flexibility, it’s essential for businesses to carefully weigh the costs against the advantages before deciding if this financing option is right for them.
Alternatives to a Merchant Cash Advance
When considering financing options for your business, a merchant cash advance may not always be the best fit. There are several alternatives worth exploring that could better suit your needs and financial situation. One alternative is a traditional term loan from a bank or credit union. These loans typically offer lower interest rates and longer repayment terms compared to a merchant cash advance.
Another option is a business line of credit, which provides flexibility in accessing funds as needed without committing to a lump sum advance.
Invoice financing allows you to use unpaid invoices as collateral for a cash advance, helping improve cash flow without taking on additional debt.
Crowdfunding platforms can also be an effective way to raise capital by leveraging the support of multiple investors who believe in your business idea. Exploring these alternatives can help you find the right funding solution that aligns with your business goals and financial needs.
Conclusion
A merchant cash advance can be a valuable tool for businesses looking for quick access to capital. While it offers fast funding with minimal paperwork and flexible repayments, it’s essential to weigh the pros and cons before deciding if it’s the right option for your business. Remember to carefully consider your business needs, financial situation, and ability to repay before moving forward with a merchant cash advance.
Additionally, exploring alternative financing options like small business loans or lines of credit can provide more flexibility and potentially lower costs in the long run. By understanding how a merchant cash advance works and evaluating all available options, you can make an informed decision that best suits your business goals and financial health.
