Is A Merchant Cash Advance Right For Your Business?

Every existing business has two main pillars – a product or idea to offer and proper funding. The more innovative and exclusive the idea, the more chances for financial support, and thus, revenue. One of the biggest obstacles to face at the beginning is finding the financial sources which will help the business get off the ground. With no personal savings and funds, small businesses and startups have relatively low chances of development. However, there’s always a safety net with a wide choice of options to choose from – angel investors, venture capitals, incubators, small business loans, crowdfunding, etc. Yet, when in need of quick and short-term funding, it’s worth checking merchant cash advances. We’ll have a look into this type of funding, its benefits, and its downsides compared to other investing options.

A merchant cash advance is a relatively new type of e-commerce funding, which offers lump sum payment provided that you repay it with the percentage of card sales and the fee (about 10%). It’s worth pointing out that only card transactions via the card terminal can be considered applicable for funding. Among regular clients, there are typically the entertainment and recreational spheres – hotels, cafes, restaurants, cinemas, etc. 

Another positive side is an easier way to get merchant advance loans, as, unlike the traditional loan, there’s no need for proof of property, inventory, assets, etc. The provider analyzes your average card sales flow and evaluates the percentage and fee to pay over a certain period of time. 

Merchant advance loans are short-termed and mainly used for resolving unexpected business expenses like repairs, renovations, equipment or technology upgrade, machinery, e-development, etc. The money can be used only for business deals, not personal issues.

Benefits of a merchant cash advance:

  1. Flexibility – after analyzing the profit of a business, the providers consider the seasonal factor – with good sales, the repayments rise, however, with low flow, they are also lowered. Such an approach offers a safety net for those who can’t meet the financial requirement due to the low season. 
  2. Easy repayment – the payments are made automatically, off the top sales. No need to fill in lots of documents.
  3. Quick approvals and funding – on average it takes two-three days to get the payment, making it an ‘emergency’ fund.
  4. Suitable for short-time funding
  5. No hidden costs – everything is transparent, and all the payments are explained before signing the deal. 

Downsides of a merchant cash advance:

  1. Costly – the repayment rate can be higher than a standard loan and may vary between 20-50%. That’s the main reason to think carefully about this type of funding. 
  2. Frequency – depending on the money provider, the payments can be set on a daily or weekly basis, so be sure to check it before signing the papers. The best option is monthly installments, as it’s less restrictive. 
  3. Only card-payments businesses – significant cash flow can be the reason for denial. Only the e-commerce business can benefit from such a financial source. 
  4. Short-term option – high rates in return for short-term cash relief. For a long-term option, you need to look for other funding opportunities. 

The eligibility varies from provider to provider, however, the basic requirements are quite common:

  1. Business experience – at least 6 months on the market, with a registered product and company name
  2. Average card sales – at least 2500-3500 pounds per month. However, there can be exceptions, which are decided on individually. 
  3. Card transactions are a ‘must’ – either online through a merchant gateway provider or on a PDQ machine. 

When signing up for a merchant cash advance contract, make sure you understand all the restrictions: you won’t be able to change your card sales – promotions, and discounts, no other types of credit allowed, no cash payments, etc.

A merchant cash advance has no upfront fees and fixed payment terms, which gives you more freedom. The money is repaid over six to twelve months. Pricing is adjusted to your business needs, and according to your income. Your lender will provide you with the full costs of the advance before you sign the agreement. 

It’s necessary to read all the terms and conditions to be fully aware of the money and percentage to repay. If you decide to take a merchant cash advance, make sure to check the reliability of the provider, their rates among the customers, and their customer experience. When money is involved, safety and security must be checked in the first place.

Consulting a merchant cash advance attorney can be a prudent step to ensure that the agreement aligns with your business’s legal and financial interests. These attorneys specialize in the intricacies of such financial agreements and can offer valuable guidance to protect your rights and investments. This legal counsel can be especially beneficial if you encounter any disputes or complications with your lender.

Merchant Cash Advance is a good option for those who need quick money to cover unforeseen expenses. It offers higher pay rates compared to traditional loans, yet the seasonal flexibility and individual adjustments make up for it. The business gets quick funding, resolves its issues, and in certain installments returns the debt.  As it’s about a short-term agreement, it’s a rather viable option to consider when looking for sources of quick finance. 


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