How Merchant Cash Advance Works for Businesses

A merchant cash advance offers small business owners an alternative financing option when they are unable to acquire a traditional bank loan. With a merchant cash advance provider, a business owner receives the financing upfront, and then repay the advance with a percentage of their daily sales. If you collect payments through cash, or credit cards, have a high sales volume, don’t qualify for a bank loan, or need funds fast, then this type of cash advance is a smart option

How Does the Merchant Cash Advance Work?

When you choose a merchant cash advance, you receive the funds you need and then repay with a portion of your sales. Usually, payments are made each day and amount to a pre-determined percentage of what is made. The total amount you are required to repay will be determined by a “factor rate,” which is a multiplier that is usually based on your business’s financial status.

Features and Terms of the Typical Merchant Cash Advance

With this type of funding, a small business owner can quickly and easily get the funding they need. The application process is usually handled in a day and the approval rate for this type of funding is high. Typically, the funds are available in just a day or two. Also, unlike a traditional business loan, the cash advance doesn’t require any collateral.

While this is true, small business owners need to be aware that there is a disadvantage to these cash advances – they are usually more expensive than a traditional cash advance. Usually, this type of advance will cost from 20 to 50 percent more than the principal amount it is for. Also, because this advance is considered a transaction, rather than a loan, there isn’t any federal oversight regarding enforcement or regulations. Without this federal oversight, there’s no way to prevent predatory lending practices. As a result, it’s up to you, the small business owner to assess your circumstances and figure out if the merchant cash advance is right for you.

Qualifying for this Funding

The process to qualify for this funding is actually easy. Most providers will offer easy online applications and fast turnaround times. Unlike a traditional business loan, you don’t have to have several years operating to qualify for the funds.

As you can see, there are several reasons to choose this cash advance for your business, rather than trying to acquire a traditional business loan. Just be sure to find the right company for the funding.


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