A Small Business Owner’s Guide To Merchant Cash Advances

Small businesses are always on the lookout for additional financing options for cash injections that can help them run their daily business operations. Whether this may be to make up for a delayed client payment, pay salaries, or place supply orders, every small business could do well with a bit of extra cash every month. One such financial service that specifically suits small businesses is a merchant cash advance.

If you are wondering “what is a merchant cash advance?” or “how does a merchant cash advance work?”, then look no further as this is the guide for you. Given below is a guide for small business owners discussing the what’s, who’s, how’s and why’s of merchant cash advances.

What is a merchant cash advance?

A merchant cash advance is essentially a type of business financing in which the lending financial institution provides the small business with a cash advance. This works for any small business that accepts debit and credit card payments from their customers.

The lender is then repaid in terms of a certain percentage of the business’ customers’ card payments directly from their payment terminal.

How does a merchant cash advance work?

Once a lender approves the business for a merchant cash advance, the business gets access to these additional funds that they can use to fulfill their business obligations. Cash advances work as a temporary cash injection, and work on the principle that money attracts more money – if you don’t put money into your business with regards to supplies and logistics, how do you expect it to bring in customers?

When the business owner sells their existing or newly bought stock, they repay the lender as a percentage of their overall sales. While typically these payments work as a small percentage of all transactions received through debit and credit cards, some businesses may also pay back through fixed withdrawals from their bank account.

With the former payment method, a typical standard is 10% of daily sales, whereas, with the latter, the company has to pay a certain amount monthly regardless of the sales value for the month.

What are the benefits of a merchant cash advance?

Merchant cash advances pose several benefits for small businesses which include:

1. Their repayment is flexible

Repayment for merchant cash advances is extremely flexible, especially if you choose to repay as a percentage of your daily sales. Repayment would hence have no fixed schedule, and your business would be repaid only when it makes a sale which wouldn’t burden you to haggle for arranging your next payment as a traditional loan would.

2. They are easy to access

Merchant cash advances are typically easy to access and have a short application process as compared to traditional loans. Borrowers can get approved for a merchant cash advance typically within 24 hours. For approval, the lender would go through the business’ sales history and bank statements to get an idea of its business operations.

3. They are unsecured

Small businesses who have nothing to their name can typically benefit from merchant cash advances as these are unsecured loans that do not require any collateral. Even the credit rating of businesses doesn’t matter as the lender would look at your business’ sales history.

Conclusion

A merchant cash advance is beneficial for businesses in more ways than one. Small businesses typically struggle with their monthly obligations and require additional financing for increasing their scale of operations. Merchant cash advances hence help businesses excel and support their growth.