Merchant cash advance is a business funding option for merchants or sellers who accept credit card payments. This loan alternative is much different from a traditional loan because it does not require any submission of collateral; it is much easier to avail; good credit history is not necessary to qualify; and the risk of default is greatly minimized.
How does merchant cash advance work? The process is actually quite simple. Let’s say that you are a business owner who implements credit card merchant processing.
During times when you need cash for a particular business project or to cover for an unexpected expense, you can apply for merchant cash advance from a factoring company or cash advance lender.
In essence, a merchant will be taking out a cash advance, using credit card invoices or accounts receivables as guarantee for the debt. Payments for credit card transactions will be sent to the lender who provided the cash advance loan to a merchant.
Most lenders offer 80% cash advance from the amount of credit card invoices. The merchant will receive the remaining 20% from the total credit card sales after payments have been completed. This method of business financing is also referred to as credit card factoring.
If you meet the lender’s requirements, you can expect to receive the amount of cash you need within the same day or the next day you submitted your application. Application is usually done online so it is very convenient especially for a busy entrepreneur. But what does it take to qualify?
Most lending companies that offer merchant services require the business to be at least two years old to ensure its stability. A lender may also require a minimum quota of credit card sales per month. If you meet these two essential requirements, then you can surely use merchant cash advance as a way to finance your business.
How much will it cost you? Business loan lenders charge interest rates in exchange for the loan. In the same way, merchant cash advance companies will of course impose charges in exchange for their services.
This is why it is important to know the terms of the lender before signing up for merchant cash advance. See to it that you understand the exact fees you will be subjected to as well as the possible penalties in case a problem arises with one of your credit card transactions such as charge backs or disputes.
Many businesses in the industry today benefit from this particular method of financing. In fact, credit card merchant factoring is a great help especially for businesses that cannot qualify for conventional business loans due to issues with their credit history.
If you cannot submit collateral in exchange for a loan, then it should not be a problem with a merchant cash advance loan. Furthermore, if you’re not comfortable with the idea of offering a personal guarantee for your business debts, then a credit card factoring is a welcome option.
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About the Author:
Melanie James has spent the last 14 years working with businesses to implement quick, effective and inexpensive changes to their businesses to increase productivity and their bottom line.