If your business needs an infusion of capital but you are not interested in applying for a conventional loan, a merchant cash advance may be the right option. Small businesses that generate a large amount of revenues from credit cards each month should consider this type of financing, because the lender takes a percentage of monthly credit card sales rather than a lump sum. This is convenient for companies that may make large sums one month but less the next month, since the percentage stays constant.
A merchant cash advance is the right option for a company that may have credit problems, but is on an upward growth trajectory. Companies are penalized for their past performance and lackluster credit rating, even if they are showing an increase in revenues. The bank wants to see at least a few months of improvement, and small businesses may need the financing right away. When applying for a merchant cash advance, the lender will want to know how long your company has been in business and how much you receive in credit card payments every month. If your business is showing strong cash flow from credit cards, then it is likely you will be approved. Unlike a bank loan, a merchant cash advance for small businesses is relatively quick to process and can take just a few days.
Many companies prefer a merchant cash advance because it requires no collateral. This means that business owners do not have to fear that their property or equipment will be repossessed by a lender, and that there will be an interference in operations. Businesses may opt for this kind of financing if there are periods of stronger sales followed by slow seasons, since repayment is through a percentage of what is earned and not through regular premiums. In addition, the problem of interest rates changing or premiums being adjusted is avoided and borrowers can usually avoid the fees that can add up. In addition, since this kind of financing is not a traditional loan, a business is not hampered with large debts, but is simply charged according to a percentage of earnings.
For a conventional bank loan, small businesses often need to have been in business for a substantial period of time to demonstrate performance. For a merchant cash advance, the company usually does not need to have been in operation more than nine months and may be relatively small. This kind of financing is well-suited to a relatively small business or one that is just starting out.