When it comes to merchant cash advances, there are a lot of things to consider. This guide will help you understand everything you need to know in order to make the best decision for your business.
What is a Merchant Cash Advance?
A merchant cash advance is a type of funding that allows businesses to borrow money against their future sales. This means that businesses can get the cash they need now and repay the loan with a percentage of their future sales.
This type of funding can be a great option for businesses that need cash quickly and do not have the time or ability to go through a traditional bank loan.
How Does a Merchant Cash Advance Work?
When you take out a merchant cash advance, you will agree to repay the loan with a percentage of your future credit card sales. This means that if you have slow months, you will still be able to make your payments.
The lender will typically give you a set amount of money upfront and then deduct the repayment amount from your future sales. This can be a great option for businesses that need cash quickly but do not want to put up collateral or go through a lengthy loan process.
What Are the Benefits of a Merchant Cash Advance?
There are many benefits of merchant cash advances, including:
- You can get funding quickly: Merchant cash advances can be funded in as little as 24 hours.
- You do not need to put up collateral: Since merchant cash advances are based on your future sales, you do not need to put up any collateral.
- There is no set repayment schedule: With a merchant cash advance, you only pay back the loan when you make sales. This means that there is no set repayment schedule.
- You can use the money for any purpose: There are no restrictions on how you can use the funds from a merchant cash advance. You can use the money to fund inventory, expand your business, or for any other purpose.
What Are the Drawbacks of a Merchant Cash Advance?
There are also some drawbacks to merchant cash advances, including:
- You may pay more in the long run: Since you are paying back the loan with a percentage of your future sales, you may end up paying more in interest and fees than you would with a traditional bank loan.
- Your credit score may be affected: If you are not able to make your payments on time, your credit score may be affected.
- You may not qualify: Not all businesses will qualify for a merchant cash advance. Lenders will typically only give funding to businesses that have a strong credit history and sales volume.
How to Qualify for a Merchant Cash Advance
In order to qualify for a merchant cash advance, you will typically need to have a strong credit history and sales volume. Lenders will also look at your business’s overall financial health.
To increase your chances of qualifying, you can:
- Maintain a strong credit score: Paying your bills on time and maintaining a good credit score will increase your chances of qualifying for a merchant cash advance.
- Increase your sales volume: Increasing your sales volume will show lenders that your business is doing well and can afford to repay the loan.
- Improve your financial health: Lenders will also look at your business’s overall financial health. You can improve your financial health by reducing your expenses and increasing your revenue.
- Have a strong business plan: Having a well-thought-out business plan will show lenders that you are serious about your business and have a plan for success.
What to Consider Before Applying for a Merchant Cash Advance
Before you apply for a merchant cash advance, there are a few things you should consider, including:
How much money you need: You should only borrow the amount of money that you need. Borrowing more money than you need will increase your repayment amount and may put your business in a financial bind.
Your repayment ability: Make sure you can afford the repayment amount before you apply for a merchant cash advance. If you are not able to make your payments, your credit score may be affected.
Your business’s financial health: Lenders will look at your business’s overall financial health when considering your loan application. Make sure your business is in good financial shape before you apply.