The Secrets Behind Non-Traditional Financing: Merchant Cash Advance
If you have a small business or start-up, it can be difficult to come up with the cash or capital you need to fund operations, invest in new products or expand your location. While business loans are a possibility, these routes can take time and end with few results. Many small businesses don’t have the credit needed for a business loan, but they also incur heavy debt before their company is profitable. There is non-traditional choice opening for small business owners. It is called a merchant cash advance.
How it Brings in the Money
In its simplest form, this financing looks like a loan. The advance company will give your company a sum of money up front, and slowly take payments (and a little extra) over a lengthy period of time. Rather than issuing monthly payments, the lender takes its payment directly from your card transactions. This seems like a smart way to make repayment, but here is where things can get tricky.
A merchant cash advance does not have established limits on daily payments. You cannot specify that you want to pay $100 dollars a day until the loan is paid off. When you establish a lending contract, you sign for a percentage of daily deduction, and this number is completely left to the negotiations between your company and the lender. A general average is 15%, but some companies may take as much as 85%. For a start-up company, this could have a devastating effect on your daily profit and ability to grow.
Are There Any Benefits?
There are two primary benefits with this type of financing. First, your company is able to get needed cash without waiting or jumping through hoops. Approval doesn’t usually include credit history or assets. It looks at bank account balances and revenue. It is also a process that can be completed in as little as 72 hours.
Secondly, although the daily financing charge may seem steep, it can be more advantageous than a monthly sum requirement for a loan. If your business doesn’t make the money necessary to pay a standard loan, you can quickly run into some problems. Even on days where you have lower sales volume, you still only need to pay a percentage and not a minimum amount.
Merchant cash financing is best used for expansion efforts, funding new hires and sales projects. This way, you are working toward the income needed to meet your responsibilities and still turn a profit.