Business Financing Options
Merchant Cash Advance is the Alternative for Business Struggling with Credit
Although it is still a relatively new concept in small business financing, merchant cash advance is being offered by a growing number of companies and could be a good alternative to the small business owner in need of quick capital.
As recently as May 2013, the Small Business Economic Trends Report released by the National Federation of Independent Businesses showed that only 31 percent of interviewed small merchants said that all of their credit needs are currently met. The credit crunch is due to stricter lending regulations adopted by banks since the banking crisis in 2008. The merchant cash advance could be a solution for those who fail to secure traditional bank loans.
Solution for Many Business Needs
The merchant cash advance, popularly known as business cash advance can be a quick solution to accessing a large amount of cash for your business and can be used for a variety of purposes. The advance is available against business resources such as future credit card sales and is often issued without any form of security or collateral.
When the merchant cash advance is based upon future credit card receipts, an agreed percentage is taken from the business’ daily credit card receipts until the full amount is repaid; another scenario might allow the business owner to arrange a fixed payment plan on a daily basis.
Money from a merchant cash advance can be used for just about any business expense: meeting payroll, stocking inventory, expanding the business, marketing and advertising initiatives, upgrading or repairing equipment, paying off other debt.
While the merchant cash advance can be a lifeline in an emergency situation and possibly a last resort for a business that is struggling with bad credit, it is not the solution for every entrepreneur. Financial experts suggest a few tips for those who might be considering this type of financing:
■ Set your priorities. Carefully evaluate your needs and take only the amount of money you absolutely need. Remember that you are committing future profits for the cash you receive. Know the percentage that the lender will take from credit card receivables and be aware of risks if the merchant cash advance is variable.
■ As with any contract that affects your business, read the fine print of your merchant cash advance agreement. You should read the entire contract and understand everything fully before signing. It might be prudent to have your attorney look it over as well if there are any parts that you don’t understand.
■ Because a cash advance for businesses can be so easy to secure -- some can be processed in as little time as a couple of hours -- some business owners may rush into the decision. Don’t. Take time to refer to your business plan and see how such an advance might impact other aspects of that plan. Also, create a financial timeline and be sure the repayment period is feasible for your small business.
■ Be aware of all fees. A fee is always attached to a merchant cash advance and is charged by the broker and the direct lender. The amount takes care of things such as switching processors, account setup, UCC filing and service fees. Check for any additional fees and be sure all of them are spelled out in the contract.