Merchant cash advances enable business owners to expand their finance options. The business cash advance market continues to grow at a rapid clip. This exponential rise is a result of traditional bank loans failing to suit the needs of small business owners.
Business cash advances are a novel type of financing. Because this is a purchase of future credit card sales, not a loan, we must use terms compatible with a purchase of future credit card sales, such as payback rate and discount rate, rather than the interest rate normally used on bank loans. Merchant cash advances are similar to factoring, but are dependent on an upcoming transaction.
Provides Upfront Cash Advance
In exchange, the business owner promises to repay the debt plus the fee by providing the lender with a daily percentage of their visa and mastercard sales until the loan is repaid in full.
Daily payback percentages will not exceed 10% of daily gross sales; daily payback percentages are calculated based on monthly credit card sales volume and the amount of cash advance necessary. The repayment period is structured to last between 6 and 9 months, but it is not fixed, and there are no penalties if it takes longer.
Typically, business owners must switch credit card processors because the advance is repaid automatically as a percentage of the earnings from each batch, but the rates will be comparable, if not better. Only a few merchant cash advance lenders like Commercial Merchant Services do not need the business to switch credit card processors. Generally, this will not be a problem, as the rates will be matched.
Business cash advances are significantly different from standard bank financing arrangements. In essence, a merchant cash advance lender buys a small proportion of future Master Card and Visa transactions, and the business owner repays the lender with a daily percentage of such sales.
For the majority of business owners, but notably those in retail, restaurants, store franchisees, or seasonal industries, obtaining cash from the bank can be challenging. These merchants primarily accept credit cards, which makes a merchant cash advance program an excellent funding option for them.
What Are Some Of The Advantages
The funds are available much more quickly than they are with a bank loan. Unsecured merchant cash advances are an excellent alternative for retail and restaurant merchants, not only because these types of businesses are rarely funded by traditional banks, but also because they provide rapid liquidity and a straightforward application process.
Numerous merchant cash advance lenders advertise that funds will be accessible in as little as 10 days, and, unlike a bank loan with a fixed interest rate, the amount due and due date are fixed each month, regardless of whether your sales increase or decrease. Rather than that, a merchant cash advance requires repayment from future credit card receivables, which does not impact your business’s cash flow.
Traditional bank loans impose a predetermined monthly payment schedule regardless of whether the business generates revenue or not. If, on the other hand, you pick a merchant cash advance, payments are calculated as a percentage of credit card sales, and if sales are increasing, repayment may be quicker; however, if the business owner experiences an interruption or a decline in sales, payments may decline as well.
Another significant benefit of a merchant cash advance is that the business owner does not have to risk his or her personal assets, as no security is necessary