A merchant cash advance can be characterized as an alternative financing option. You will be provided with financing upfront and will pay for the advance with a percentage of your business’s daily sales.
This a good business funding option for small business owners who receive payments through cash, credit cards or checks, have a high volume of sales, and need to get the financing for their business quickly. Also, merchant cash advances are good for those cannot qualify for traditional bank loans.
A Merchant Cash Advance: How Does It Work?
Small business owners can apply for a merchant cash advance in exchange for a percentage of their business’s income, meaning mostly credit card transactions, over time. Generally, payments will be made on a daily basis or automatically based on a percentage of your business’s daily credit card income.
If you choose to get a merchant cash advance, you will repay the total amount due to the so-called “factor rate.” The latter is a multiplier that is generally based on the financial status of a business. Merchants interested in business funding, including merchant cash advances, should turn to a reputable high risk payment processor like firstamericanmerchant.com or First American Merchant (FAM).
Terms and Features
Merchant cash advances are a quick and easy method to get funding for your business. Usually, you will get approved within a day, and the application process is hassle free. Unlike traditional business loans, no collateral will be required for a merchant cash advance.
However, merchant cash advances are usually more costly than traditional small business loans. They usually cost 20%-50% more than the principal amount. Also, merchant cash advances are viewed as commercial transactions (not loans), so there are no federal regulations and enforcement applied.
Do You Qualify for a Merchant Cash Advance?
Unlike traditional business loans, qualifying for a merchant cash advance is easier. Mostly, you will be asked to complete an easy online application with quick turnaround times. Moreover, you will not necessarily need to provide a long operating history. Poor to average credit score will not create obstacles either.
A merchant cash provider will be interested in whether your business has had a consistently high sales volume. The majority of providers require 75%-250% of a business’s sales volume per month.
If you are going to apply for a merchant cash advance, make sure to prepare your business tax returns, official photo identification, credit check authorization, credit card processing statements, and bank account statements. Determine whether you can afford it before applying.