If you are a small business in need of capital, you may have noticed that your options for securing extra financing are greatly limited. It is generally standard for new small to medium-sized businesses to have great difficulty in finding a bank willing to lend them money. New businesses simply don’t have the credentials and track record that lenders require to prove their trustworthiness.
However, there is one solution that can be worth considering if you have been denied a business loan, and that is a merchant cash advance. A merchant cash advance (MCA) is a cash advance based on the credit card sales of a business.
Here are the five benefits that make merchant cash advances a really popular option.
You can get a lump sum of cash very quickly.
When you apply for a merchant cash advance, you don’t have to wait a considerable amount of time to receive your funding. In fact, you will only need to wait for less than a week to see the funds deposited into your account.
You don’t need immaculate credit.
Your odds of getting approved for a merchant cash advance are higher than a loan and even certain credit cards. If you don’t have a pristine credit score, you may still qualify. The most critical requirement is that your business makes a certain amount of business credit card sales every month. This way, the lender is assured that you will be able to pay the advance back.
No Set Payment Amount Required.
To clarify, a merchant cash advance is not a loan. There is no set monthly payment and there is no set repayment term. What you are agreeing to is receiving a lump sum of cash in exchange for a portion of your business’s future credit card sales. So in essence, when you take out a merchant cash advance, you are not borrowing money, you are selling a portion of your future profits. Therefore, when your sales are slow one month, you will be paying back a smaller amount than you would if your sales were thriving.
You can use your money however you please.
There are some business loans that carry restrictions on how the money is to be used. The Small Business Administration’s “504 loan program” for example, can’t be used to purchase inventory.
However, with a merchant cash advance, you are free to utilize the funds in whatever way you choose. There are no restrictions. This type of flexibility is crucial, especially if you need to diversify the funds to cover different costs.
You won’t risk your assets or credit rating.
Some business financing requires you to have a high credit score, a history of good business behavior, or significant collateral, just to get approved. Once funded, you will be required to pay a certain amount each month or you’ll be faced with financial and legal repercussions.
Since a merchant cash advance is a sale of future revenues, you only pay based on your credit card sales. Your merchant cash advance provider will not be seizing your assets.
Like any financial solution, merchant cash advances might not be what your particular business needs. However, they do offer numerous benefits, as outlined above if you don’t qualify for a business loan. Do take time to research all your options to ensure you choose the option that will push your business forward.