Ins and Outs of a Merchant Cash Advance

If you are a small business merchant in need of cash, it would be worthwhile to learn about the advantages and disadvantages of a merchant cash advance. Before further pursuing this type of cash advance, you need to consider how often your business makes credit card transactions. This type of advance is specifically for merchants who make credit card transactions every single day. That is the primary reason it is referred to as a merchant advance; merchants refer to restaurants, retail stores and other service companies that receive credit card payments daily. If your business falls into this category, then you also need to provide proof of credit card sales over the last four months and a minimum of $2,500 monthly in credit card billings. That number can vary depending on the advance your business is seeking. If your business meets these requirements, then you could be eligible for a cash advance. However, you need to know the advantages and disadvantages of this type of financing.

Advantages of a Cash Advance

In the past ten years, banks have been very strict with lending to small businesses. There are a lot of requirements when applying for a small business loan from a financial institution. With a merchant cash advance, there is no fixed monthly payment, no interest rate and no required collateral. Additionally, you can have access to funds within a day or two, there is no liability if you are unable to repay the advance and you can experience better cash flow. As a business owner, your assets are not at risk by using a merchant cash advance. You simply pay a set percentage of sales each month.

Disadvantages of a Cash Advance

As with any type of financing, there are always a few disadvantages. While the life of a merchant cash advance is typically no more than a year long, it is overall much costlier than a traditional loan. While there is technically not an interest rate with a cash advance, you are still paying a fee that is estimated to be anywhere from 60% to 200%. Also, since you are not receiving a loan, the advance is not regulated and there have been some questionable practices that have occurred. Furthermore, your agreement can prevent you from encouraging customers to pay with cash and from switching credit card processors for the duration of the advance.

If you own a business and need cash quickly, a merchant cash advance can provide you with the necessary funds. Just beware that you could end up paying significantly more than you would with a traditional loan.