Merchant Cash Advance

Merchant Cash Advance

Loans are a part of doing business for many small businesses. Whether the merchant is looking to expand their business, cover operating expenses in a lean month, or cover the cost of an increased product for a special event, the merchant cash advance is a legitimate option.

While not technically a loan, seeing as the money is not covered by assets, a cash advance is simply a way to borrow against future earnings.

The merchant cash advance can offer needed cash when a business loan is not an option.

The cash advance may be the only option for some businesses. However, it is not an arrangement to be entered without careful consideration.

There are many upsides to getting money from a cash advance, but a business must keep in mind that future earnings will be reduced as the money is paid back to the creditor.

The upside is that the cash can be in the accounts of the applicant within 24 hours and immediately ready to be used for whatever project the business is looking to cover.

Once the cash is in hand, there is no bank telling the business how the money is to be spent. Whether it is for upgrades or payroll, the money is available.

In addition, most cash advance offers come with the flexibility to create a payment schedule that works for the business. This means the business can choose the amount paid out of the daily billing cycle.

The advantage of this daily percentage is that there isn’t a set amount to be paid each day. On a good day, the business pays more and a slow day means less out of pocket.

This continues until the entire advance is paid off. The interest is paid at a factor rate which means it is spread out along the whole life of the cash advance and does not change.

The upside to this is the business knows exactly how much they need to pay back and knows that it is a set number.

There are some downsides to a cash advance.

The interest rates run higher. The average business loan runs between 2.5%-7%. Credit cards run around 20%. A merchant cash advance generally costs between 70%-200%.

The business will pay a lot more in the long run. However, if the cash advance is used to invigorate the business or upgrade sales, the business could still see a revenue increase even while paying back the cash advance.

At the end of the day, whether a merchant cash advance is right for a business is determined after careful examination. If handled correctly, it can be the boost a merchant needs to succeed.