Merchant Cash Advance Pros & Cons? What is Cash Advance?

Let’s talk about the type of business financing that is easy to qualify compared to term loans from the banks. But if you are not looking into traditional options or you don’t qualify for them, you need to take a look at other financial options. Let’s take a deep dive into merchant cash advance, and whether they’re right for your business.

What is A Merchant Cash Advance?

A merchant cash advance is a type of financing that allows you to get a cash advance on credit card sales made by your business. You repay the amount borrowed, plus a fee — often called a factor rate. Payments are typically made on a daily or weekly basis and are calculated as a percentage of your sales. Advances can typically be obtained quickly — sometimes within 24 hours of applying. But they can be expensive, especially compared to online or bank term loans. But for businesses that need the extra cash flow assistance, have the credit card sales to qualify, and can keep up with the payments, a merchant cash advance may be just what’s needed.

merchant cash advance
merchant cash advance

Cash Advance Pros?

To help you determine if it’s right for your business, let’s talk through the main benefits and drawbacks of a merchant cash advance. On the positive side, it has a fast turnaround time compared to more traditional types of business financing. Instead of a month or more to get funds, you’re likely looking at a week or less. It doesn’t require you to have collateral to take out financing. That means your personal or business assets don’t need to be valued for you to qualify. A not-so-perfect credit score won’t shut you out of financing, either. Since some companies rely wholly on alternative data, your credit score might not even get checked. And finally, payments being based on your sales means you’re likely going to have an easier time keeping up with them.

Cash Advance Cons?

On the con side: It can be expensive — the equivalent APR for some merchant cash advance begins in the triple digits. You also pay the same amount regardless of whether you pay it off early. Since the amounts are lower and repayments are usually limited to around 12 months, cash advance aren’t built to be long-time financing options. Finally, it’s not regulated the same as other banking products, which are ruled by federal laws. If a merchant cash advance is right for your business, it’s time to compare providers and apply.

merchant cash advance
merchant cash advance

How To Get a Cash Advance?

First: Find a merchant cash advance provider that offers financing in the amount you need, with a decent factor rate and qualification requirements your business meets. Second, fill out the lender’s online application form. This will include basic questions about the business and likely three or more months of credit card statements. If your application is approved, you’ll be extended an offer. Review the terms, including the percentage of your sales due as payments and how often they’ll be collected. Requirements for a cash advance can be more forgiving in some ways than other traditional financing options. But there are still certain standards your business will need to meet to be approved. Before you apply in full, see if you can get quotes from various cash advance providers. Generally, you’ll need to meet its most basic requirements to be given a full quote, and most won’t affect your credit. Three of the most common standards your business will need to meet are The time-in-business requirement, which sits around six months for most cash advance lenders. Monthly or annual sales revenue is also evaluated. You will want a $5,000 monthly or $60,000 annual minimum to qualify with most lenders. Lastly, don’t have any open bankruptcies when you apply. While there are some options, you’ll be much more limited.

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