Merchant cash advances are one of the most innovative products in business finance. The concept is new, but already quite popular with the retail businesses and the leisure sector. But is the concept good for long run? Or is it just a flash in the pan?
In merchant cash advance financing, your card terminal is used to 'secure' lending that is perfect for businesses without many assets, but who have a good volume of card transactions every month. Repayments are then taken as a proportion of your revenue, making it a quick and easy funding solution for many SMEs.
In merchant cash advance financing, your card terminal is used to 'secure' lending that is perfect for businesses without many assets, but who have a good volume of card transactions every month. Repayments are then taken as a proportion of your revenue, making it a quick and easy funding solution for many SMEs.
How merchant cash advances work?
A merchant cash advance isn’t a loan. It is instead an advance payment against your business’s future income. The provider lends you a lump sum, which is repaid automatically using a percentage of your daily credit card receipts, which is termed as the “holdback” or retrieval rate. Repayment begins immediately after the funds are received.
Who can get a merchant cash advance?
Any business that uses a card terminal to take payments from customers will have a cash terminal provider that is the company that processes transactions for them. In other words, any business that receives payment via a card terminal can get a merchant cash advance.
With a merchant cash advance, the lender works with the terminal provider so they have visibility on what’s happening, and how much money is flowing through your business. Since the lender can quickly see what the business makes over an average month, they can agree a loan amount and a repayment plan much faster than any other options. It is the perfect choice for businesses that are in need of fast cash and yet don’t have valuable assets.
Benefits of merchant cash advance
a) Flexible and scalable finance
In merchant cash advance, the pay back system is flexible. That means, you pay back when you are doing good in business and pay back a smaller amount if the business is down. It is often a preferred choice by many companies because unlike fixed payment finance, you can have more reassurance that even if you hit a low in business, you will be able to pay back the loan.
b) Easy repayments
The lender works directly with the card terminal provider, and hence the percentage deducted during payment doesn’t bog down the business bank account.
c) Can be taken along with other forms of finance
It’s possible to get other types of finance for your business at the same time as a merchant cash advance, which can be useful for lots of businesses. That means it is possible to get a merchant cash advance along with an equipment lease that is already taken.
d) No collateral needed
Merchant cash advances are unsecured and hence you don’t need to put any personal or business assets on the line to obtain one.
e) No requirements of perfect credit
Merchant cash advances don’t seek for a strong personal and business credit score that is prime requirement for most business loans.
f) Funding is fast
Merchant cash advances are mostly in demand for its potential for fast approval and funding. That is a great achievement if you need money right away to cover payroll or an unexpected expense.
g) High borrowing limits
The limit of borrowing in merchant cash advances can vary from few thousand dollars to few million dollars, the latter being much more generous an amount than what the bank offers.
These are the main reasons why merchant cash advance financing is going up on popularity level. Bank loans, mortgages and other loan types are overpowered by this particular mode of financing.
