Raising a capital for your business can be a challenge, especially if you need it right away. A merchant cash advance, or merchant financing, can be a quick option to get funding when collateral or credit rating is lacking.
But it’s important to note that this is just a temporary source of cash flow so your business can have a chance to sustain itself. Read on to learn more about merchant financing.
Merchant Cash Advance in a Nutshell
While merchant cash advances provide small or startup businesses with much-needed funds, it is not considered a loan. The merchant cash advance provider agrees to give you a lump sum in exchange for a portion of your future credit card sales for a certain period until your cash advance has been fully repaid. The amount you can borrow can range from 50% to 250% of your business’s overall credit card transactions.
The retrieval rate or the percentage you pay can be between 5% and 20%, depending on the amount of the cash advance, the repayment period, and your business’s credit card sales. Repayment begins upon receipt of the fund and it could be as short as 90 days or as long as 18 months.
Benefits of Merchant Cash Advance
- Less paperwork. Processing a traditional bank loan can take months, but because there is less paperwork involved with merchant cash advance, the turnaround is faster, usually under seven days.
- No collateral needed. Unlike traditional bank loans, merchant cash advance approval is based on your business’s previous credit card sales instead of collateral.
- High approval rate. Applications are rarely denied with a merchant cash advance; therefore, it has a higher approval rate than commercial bank loans.
- Easier repayment plan. Repayment of a merchant cash advance is more flexible, as it is based on the percentage of your sales instead of having to pay a fixed monthly payment, which is the case with traditional lenders.
Bank loans are important sources of funds, but not everyone can qualify and it might take time for your application to get processed. If you need to borrow money right away but have no substantial collateral to offer in exchange, then a merchant cash advance is the best option for you.