When customers are streaming into your premises and sales are steady, but they’re not enough to finance a particular operational expense, it’s time to seek additional funding. A merchant cash advance is among the few viable choices you have.
What is it?
In brief, a merchant cash advance works like this: A provider gives you cash fast, in exchange for a cut of your future credit card sales.
So, contrary to popular belief, an advance is more of a business trade than a loan.
Traditional loans are known for their long list of requirements. A lender will want to have a peek at your financial records, credit history, business plan, a list of assets, and so on. A merchant cash advance and advance provider, on the other hand, will only be interested in the current state of your business.
The most common eligibility condition is proof that your business has processed recent monthly sales of a minimum value set by the provider. It can range from $5,000 to $50,000 depending on the financier’s policy and the amount of funding for which you’re applying.
Furthermore, a provider may attach conditions like being in good standing with your landlord, having at least 12 months left on your lease, and no recent bankruptcy declarations.
Paying back an advance
Providers typically approve applications and credit a borrower’s account in a few days. For payment, your provider will be getting a predetermined percentage of your individual sales until the debt is paid in full, and with interest.
Some merchant advance providers accommodate high-risk businesses, but the percentage of sales they get, as well as the interest rates they charge, depends on the level of risk. First American Merchant, for example, has an extensive list of industries on their website, all which carry their exclusive rates and requirements. Sectors that attract strict supervision from the government, for example, such as drugs and firearms invite the highest interests.
Merchant cash advances offer simple applications, quick funding, and a flexible payment scheme. But sometimes what seals the deal for man borrowers is the “non-recourse” policy most providers follow.
This means that if you go out of business having not paid back an advance, you immediately cease to be indebted to the financier and the provider has no way of reclaiming their lost funds
As a merchant, therefore, you’ll never have to worry about your operation leaving its debts on your head if it fails.
A cash advance is arguably the best way to get the funds you need to offset unmanageable operational costs.
However, ensure you fully understand what you’re getting into. Unless you plan to close up shop, your business must be able to cope with the interest rate, and the percentages set, and eventually pay the advance.