While it is a loan and credit product, it doesn’t work quite the same way as a regular small business loan.
In fact, the way it works provides numerous advantages for businesses that are wary about debt, unsure of their revenue, and may have limited time-in-business, a limited credit history, less-than-perfect credit score, and are in need of small business funding to fuel their operations or expansion.
Read on to learn more about merchant cash advance services and all they have to offer small businesses.
What is a Merchant Cash Advance and How Does It Work?
A merchant cash advance is a form of merchant funding that could just as easily be called a small business cash advance. Rather than being a traditional cash advance loan, however, it’s a bit different.
Merchant cash advances provide a lump-sum up-front cash payment to satisfy the small business funding needs that may occur during a short-term period.
At the same time, the business must pay back the cash advance, with interest. But rather than making regular daily, weekly, or monthly payments on a fixed schedule, the repayment takes the form of a deduction from a percentage of future credit card sales.
In this way, the merchant cash advance ties the repayment to actual sales activity. Businesses are not saddled with a fixed repayment schedule that they may not be able to meet. If receipts increase, then repayment rate increases.
If receipts decrease, then repayment rate decreases. This can greatly help many small business funding customers to more consistently repay their merchant cash advances over other loan products, without having to guess what the future of the business may hold in terms of income.
At the same time, since repayment is automatic and deducted from credit card sales, the risk level is a bit lower for lenders than with some other forms of small business funding.
This allows even fairly new businesses with limited operating history to gain access to merchant cash advance services from most small business lenders.
The outstanding debt risk is lower for the business, and, like many small business loans and credit products, merchant cash advances are unsecured, meaning there are no collateral requirements.
Ideal Businesses to Benefit from Merchant Funding with Merchant Cash Advance Services
The best fit for merchant cash advances are businesses that operate on credit card sales. Retailers, restaurants, boutique shops, and high-volume service businesses can most benefit from merchant funding with a merchant cash advance.
Those with limited to no credit card sales receipts won’t make a good fit, and should seek other forms of small business funding.
It’s also worth noting that merchant cash advance services can be a somewhat expensive form of funding, and are designed for short-term needs.
While the repayment term isn’t fixed to a calendar date, the amounts are typically designed to be repaid within 1 year or less. Longer-term small business funding options may be more ideal for some kinds of business needs.
The most common uses of small business cash advance services include providing immediate funding for business expansion opportunities, covering labor or payroll expenses (particularly in highly seasonal businesses), emergency or unexpected expenses such as repair bills for equipment, or for buying added inventory to keep up with increased sales demand.
It’s worth noting that merchant funding from merchant cash advances, like many forms of merchant loans, is not restricted in how it is used. Businesses can take the loan proceeds and use them as they see fit, to best address their small business funding needs.
The Reasons to Choose Merchant Cash Advances Over Other Options
Small business loans and other small business funding options may not be the best way to go for businesses that are a good fit with merchant cash advances.
While collateral isn’t risked, the fixed repayment nature of many small business loan or merchant loan products can be hard to manage.
This is especially true for businesses that are highly seasonal in nature, have inconsistent cash flow from sales activities, or large peak to trough variances in daily or weekly receipts. In these cases, a merchant cash advance is usually an ideal solution.
Because the repayment is tied to sales, merchant funding in this manner doesn’t put an undue strain on the business when times are otherwise tough.
And, because these forms of merchant funding are somewhat lower risk for lenders than other small business funding options, the eligibility requirements are usually lower.
This means that more and more small businesses are able to quality for a merchant cash advance, even with less-than-perfect credit, limited assets or operating history, and so on.
Qualifying for a Merchant Cash Advance with BizFly Funding
At BizFly Funding, one of the premiere small business funding sources in the US today, qualifying for a merchant cash advance is a fast and easy process.
Most customers are approved in as little as a few hours, and can receive their merchant cash advance service funds within 1 business day.
The entire process of repayment is automated once you’re setup with a merchant funding account, removing a lot of the hassle and stress from the business.
This is another key advantage of merchant cash advance services over some of the other forms of small business funding that are available, even from BizFly Funding.
To qualify for a small business cash advance at BizFly Funding, small businesses only need to meet the following requirements:
So long as you meet those basic requirements, your small business can qualify for a merchant cash advance at BizFly Funding. Advances for as much as $250,000 are available, depending on the particular finances of your small business.
So, if you think a merchant cash advance would be a good fit for your small business, get pre-approved today at BizFly Funding.