3 Little-Known Facts About Merchant Cash Advances
Cash flow problems can happen to any business at any time. Loans and lines of credit can help, but there are other possibilities, too. With a merchant cash advance, you have another option to solve your cash flow problems, whether it is because of late client payments, lower sales than projected or lost inventory.
To begin with, a merchant cash advance is a lump sum advancement a business is given with the agreement that it will be repaid by the lender taking a portion of the business’ credit card transactions from consumers. It is very similar to a loan in that the full amount is borrowed at once, whether it is $20K or $200K, unlike a line of credit. It is a good option if your business is in dire need of cash to solve a cash flow problem quickly and efficiently.
There are three little-known things about a merchant cash advance to help you make an informed decision. The first is that you can borrow a high amount, allowing you to cover whatever business expenses you need to. Lines of credit are usually smaller amounts, much like a credit card. This type of borrowing allows for far greater flexibility in terms of the set amount.
That being said, the repayment plan is different than you might expect. For starters, it is a daily or weekly repayment plan. When you agree to this type of borrowing, you are also agreeing to have a portion of your daily credit and debit card transactions deducted to pay back the amount you borrowed.
To go along with that, this daily cutback reduces overall cash intake of the day from sales, which will affect your business numbers. You may have to readjust your daily sales goals in order to maintain your sales levels without them dropping while you work towards repaying the money you borrowed. With this option, you are repaying the money you borrowed right away, either daily or weekly depending on the repayment agreement, whereas loans and credit lines offer you months to pay it off.
A merchant cash advance is a good option for a business that needs a large amount of money immediately. However, several things should be considered with this type of borrowing, just as you would with any other business decision. Not every business or business situation suits this type of borrowing, so make sure you find the solution that best suits the needs of your business.