Over the past decade, economic conditions have made it increasingly difficult for small business owners to get approved for a traditional bank loan or line of credit. Rather than let their businesses go under, many are turning to a merchant cash advance to stay afloat during down cycles. This type of funding provides fast cash in exchange for a percentage of the business’ future credit and debit card sales. You may be wondering if a merchant cash advance is right for your business. Here are the benefits of utilizing this type of funding.
1. Easy Application Process
The process requires a quick evaluation of a business’s financial statements, tax returns, average credit/debit card sales, and business plans. Merchant cash advance lenders will generally base their decision on the monthly credit card returns and the length of time in business. Lenders traditionally look for a minimum of $5,000 in monthly credit or debit card sales and nine months in business.
2. No Credit or Collateral at Stake
While a traditional bank loan may affect your business credit rating or even risk the loss of collateral, a merchant cash advance is considered a sales transaction. Therefore, the advance is not visible on a business credit report and no collateral is required for approval. Similarly, a low credit score will not affect your chances for funding, but it can help you secure a lower provider fee.
3. High Approval Rate
Any business that accepts credit or debits cards can qualify for a merchant cash advance. Providers will look at business performance rather than credit when evaluating an applicant. This process ensures that any stable business can qualify for an advance. Typically providers will approve 95 percent of applicants. The amount of funding is dependent on a business’s average monthly revenue in the previous year.
4. Fast Cash
As a result of the minimal paperwork required to apply, merchant cash advances provide speedy funding, typically within seven to ten days. In times of growth or an “off season”, this can be a particularly significant benefit. For example, a merchant cash advance can help maintain the daily operations of tourist-related establishments, like restaurants or resorts, as they wait for the new season.
5. Flexible Repayment Terms
Merchant cash advance is a revenue-based type of collection, meaning that the lender gets paid when you get paid. Daily repayment terms are based on a pre-agreed percentage of a business’s actual daily credit/debit card sales. This type of agreement allows a business to pay less when sales are down and more as they increase. A percentage based collection policy such as this is set up to support a consistency in cash flow rather than draining funds.
Learn more by reading our Merchant Cash Advance Buyer’s Guide.
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