If you're looking for a way to grow your business, but don't have the credit score or collateral to secure a traditional bank loan, a merchant cash advance may be your best option. This short-term financing option is typically unsecured and does not require any collateral. They can also be used as working capital or provide funding for new equipment or inventory. Merchant cash advances are easy to obtain, but they aren't right for everyone. Here are seven factors you should consider before taking on this type of financing:
There is no loan attached to a merchant cash advance (although it is a type of financing). The way that merchant cash advances work is that you’re borrowing money from a financial institution in the form of a short-term, flexible line of credit. The funds are provided to your business on a non-recourse basis, meaning you don’t need to repay the principal or interest until your business has sold products and services to customers and collected their payments. This is similar to factoring where you sell your invoices before they become due with no risk of non-payment by your clients because it's paid at the time of sale and therefore classified as an asset on your balance sheet rather than debt.
Merchant cash advances typically have a short amortization period, which is beneficial for businesses with steady revenue. The typical merchant cash advance has an amortization period of six months or less. Some companies offer shorter payment terms, such as two months or three months, but the point is that these loans tend to be repaid quickly if you have consistent sales and your business can weather some bumps in the road.
A merchant cash advance is a relatively new form of financing that provides working capital to growing businesses. Unlike traditional bank loans, merchant cash advances don’t require any collateral. This gives companies more flexibility when it comes to accessing capital and making decisions on how they can use the money in their best interest.
The ability to get immediate funding without having to put up any collateral may be one of the most attractive features of an MCA (although there are many others).
MCAS are a financing option that can be used to fund business growth. They can also be used for other purposes, such as paying off debt or funding a new project.
Merchant cash advances are not loans and therefore do not follow traditional lending terms. This means that interest rates are typically higher than traditional financing options, and you may also have to pay fees upfront (such as an origination fee).
A merchant cash advance can provide a potential advantage over other financing options. The business must be able to pay off the advance quickly, however, given that its term is generally only 4 to 12 months. They're ideal for businesses that are looking to grow and need quick, flexible capital without having to get into debt.
A merchant cash advance may also be a good option for businesses that have steady revenue coming in and don't need to use the money right away. They have many benefits compared with traditional bank loans or lines of credit; such as the ability to pay off your loan early without penalty, giving you more flexibility in repaying your capital.
Interest rates can vary widely among lenders. Rates are typically higher than other financing options, such as SBA loans or small business line of credit. However, they can be negotiated and often depend on the amount of the advance and your credit score, and approval rates are higher.
Although MCA interest rates tend to be higher than traditional financing options, it’s important to note that some lenders offer discounted interest rates for borrowers with strong financials and good credit scores.
Merchant cash advances are ideal for a specific type of borrower. To get the best results from merchant cash advances, you should apply only if you meet the following criteria:
· Your business has a consistent revenue stream. In other words, your customers pay their invoices on time and in full every month. If this isn’t true for your business, then it's unlikely that you'll be approved for a merchant cash advance. After all, this funding option is meant to help businesses with stable sales volumes by providing them with quick access to capital so they can keep buying products/services from their vendors and paying their employees on time every single month (or quarter).
· You have an established history of paying off your bills promptly and in full each month; including any previous credit card balances or loans from banks or other institutions before applying for an MCA now. Because MCAs don't require any collateral upfront like many traditional forms of financing do (like small business loans), lenders will look at how well applicants have managed their finances in the past, and whether they were able to pay off debts when due.
The first aspect to know about merchant cash advances is that they are not a type of loan. They're more like a high-interest line of credit, which means you don't have to worry about the same rules and regulations that would apply to a traditional loan. Merchant cash advances are typically used for business growth and can be used for anything from expanding your store or buying new inventory to paying employees or improving your marketing strategy.
The second factor is that merchant cash advances typically come with a very short amortization period; between 4 and 12 months, depending on how much you borrow, so it's important that you have steady revenue coming in and can pay off the advance quickly.
There are a few things to consider when looking at merchant cash advances. First, they are not business loans. This means that your business will not have any collateral requirements or interest payments after the fact. Second, the terms of these advances are typically short-lived. You may be able to get up to 12 months' worth of money upfront with this type of financing option but you must pay it back so make sure you can repay quickly before applying. Thirdly, this type of financing is ideal for stable revenue-generating businesses as well as businesses with some sort of credit history which allows them access to better rates.