Merchant cash advances are different than other types of cash advances. These advances will usually need to be paid back to the lender within a six month period of time. They can be costly for their purpose. However, it is an easy and convenient way for businesses to get the capital they desperately need. A business is able to obtain their merchant cash advance without tapping into their daily cash flow. This ensures a business is able to maintain their financial security while paying the money back.
Is A Merchant Cash Advance A Loan?
This is one of the most common myths revolving around merchant cash advances. They are not a typical loan. At first, the process to apply for the advance may seem very similar to the loan process you would find at banks, credit unions and other lenders. Once you have applied and received approval, this is where the similarities between a loan and a merchant cash advance will end.
When you take out a loan, you will usually have to commit to a fixed payment plan based on your credit score and the amount you borrow. There will also be a predetermined amount of payments set in advance. Merchant cash advances are different because the amount is based on the daily credit card or debit sales of a business. Paying back the advance will be paid on a daily or weekly basis based on the sales volume.
Do Merchant Cash Advances Come With High Interest Rates?
There is no one rate set for merchant cash advances. The interest rate that is charged will be based on the sales volume, the provider and the projected amount of future sales the business has.
Can A Business Have More Than One Advance Out At A Time?
While it is not advised to have more than one loan or advance out at a time, a business may opt to take out a second merchant cash advance in order to pay off another one. This can be a great way to save on interest and fees.
Are There Strict Guidelines To How The Funds Can Be Used?
Most merchant cash advance lenders allow their customers to use the funds they are approved for in any manner they want. A business will have flexible access to their funds. Most businesses will use the funds for purchasing new equipment, buying extra inventory, paying staff and improving other business facilities. Most businesses have endless areas where a little extra capital can really help out.
Most lenders will require a business be opened and running for at least a year before they can get approved for a merchant cash advance. Depending on the lending company, other requirements might need to be met such a having a certain amount of documented sales and revenue. Most businesses will not be required to obtain new payment equipment for approval of an advance. The terminal a business has can be reprogrammed for the lender within a few minutes.
Are Bank Loans Better Than Merchant Cash Advances?
For some businesses, a traditional loan from a bank or credit union might be a wise choice. They are not always the best solution for all, however. Most lenders of traditional loans will require you to have a long, established credit history. It can oftentimes take weeks to get approval. This is not a good scenario for a business that needs capital right away. When a business chooses a merchant cash advance when in need capital, they will usually be able to access those funds within a few business days after getting approved.