What is Merchant cash advance?
A merchant cash advance or revenue based loan is a source of short term business funding for business owners who find it difficult to obtain financing from banks or lenders. These advances are repaid within the time period of six to twelve months. Merchant Cash Advance is borrowed against your future credit card sales.
To qualify for a merchant cash advance, your business must have a daily credit card transaction. You also need to submit a proof of your previous credit card sales. The requirement for credit card sales is between $2500 to $5000. This works as an assurance that you can repay the advance.
A merchant cash advance has several benefits, but at the same time, there are some disadvantages that you need to take into consideration.
Pros of Merchant Cash Advance:
It is a good source of financing. Below are some excellent benefits of Merchant Cash Advance.
Easy to Qualify:
In any loan, the biggest challenge is to qualify for it. But in this case, it’s completely hassle-free. Small businesses get the perk to qualify for the advance easily. Several merchant advance companies will only look at your previous credit card sales. This will give them the assurance that you are capable enough to repay the advance.
In some cases, companies might ask you about your credit history and how you are planning to make money out of your business.
Fast Payments:
Another advantage of a merchant cash advance is that you will get your money fast. Within a week after the submission of your application, you will receive the advance cash. Moreover, some companies even provide you with the advance within 48 hours.
If you are going through a big financial loss, then merchant cash advance can be your way out.
No Monthly installments:
You don’t have to worry about being unable to repay an installment in the case when your business sales are going slow. This is because you pay lenders a fixed percentage of your credit card receipt each month.
Cons of Merchant Cash Advance:
There are some drawbacks of obtaining a merchant cash advance. They are as follow:
High Fees:
The biggest drawback of merchant cash advance is the high fees. They are charging you 60to 200% APR on the advance. Many business owners get fooled because they are not aware of how much they are paying.
Daily deduction of funds:
As lenders are deducting funds from your credit cards on a daily basis, this will have a huge impact on your cash flow. And this will make your business suffer in the long run.
Not a long-term solution:
A merchant cash advance can help your business to cope up with temporary problems, but for long term solutions, you need a huge capital.
THE BOTTOM-LINE:
A Merchant Cash advance can come handy for your small business if you have no other option. But before applying for it, you need to consider the above points. Choose Wisely!
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