A merchant cash advance has, in the past, been an option for businesses whose revenue comes from credit and debit card sales, e.g. restaurants and retail shops. These days, merchant cash advances are available to businesses that don’t necessarily rely on credit or debit card sales. While merchant cash advances are not technically viewed as a loan, the lender gives the borrower an upfront, agreed-upon sum in exchange for a piece of your future sales. These loans can be structured in the following two ways. Receive an upfront sum of money in exchange for either a percentage of your future credit and debit card sales or by making daily or weekly payments. The latter is quite a popular option these days as it allows the borrower to make daily or weekly payments plus fees instead of one fixed payment every month. How much you’ll pay in fees is determined by your ability to repay the cash advance, but it typically ranges from 1.2 to 1.5 based on your risk assessment.
Percentage of credit card sales
The merchant cash advance provider will automatically deduct a percentage of your credit or debit card sales until you have met the agreement up repayment amount. This means that you will pay more on good months and less on bad month as it is based on monthly revenue. Here the repayment period can range from three to 12 months, although the higher your credit card sales, the faster you will be able to pay back your advance.
Fixed daily withdrawals
With this type of agreement, borrowers must make a daily or weekly repayment based on an estimate of your company’s monthly revenue. Unlike the previous repayment structure, this option does not depend on your sales, which means you pay the same amount whether sales are up or down.
Why you should consider a merchant cash advance
There are many advantages to merchant cash advances, including the following:
They’re fast – A merchant cash advance can be approved in within a week, and there is usually minimal paperwork involved. Lenders will look at the businesses daily credit card receipts to evaluate whether the borrower can repay or not.
Your home or property will not be on the line – Merchant cash advances are unsecured loans, so you don’t have to put up any collateral. This means that you won’t forfeit any of your most valuable assets if you fail to repay your advance.
All things considered, the aim of this type of rapid advance business loan is to help business owners meet financial obligations without having to resort to drastic measures. While all borrowing comes with certain terms and conditions, you must decide which option best suits your needs and that of the company.