It’s paramount to get to know what a merchant cash advance is all about; a lot of people must have seen or heard of this somewhere but are yet to grasps it’s full meaning. In the simplest definition, a merchant cash advance is said to be a type of financing that allows a company to sell a part of its future sales in exchange for an urgent payment. The generated finance from the sale provides the company with funds to pay operational expenses needed for other projects they might have. Paying back the catch advance loan depends on the agreement signed on the contact. The payback method thus totally differs from the financing agreement.
From inception, merchant cash advances were used only to finance credit card sales, thus making most of the client’s retailers and restaurant owners. As time progresses, the product has evolved to the point where cash advance companies can finance any future sales, irrespective of how the payment was made.
How do Merchant Cash Advances Work?
A lot of cash advance companies make it clear from the onset that their transactions are a purchase of future sales and not a loan deal. In a bid to determine how much funding the purchaser can provide, the finance companies will have to review their banks’ statements, credit card sales, commercial sales and other relevant information. The purpose of these reports is to provide them with sales performance information, which gives them an idea of the purchaser’s future sales capability.
Some Amazing Facts About Merchant Cash Advance
Getting a merchant cash advance deal is not for every business, whether big or small. Before a company even decides to opt for a merchant cash advance, it is advisable for one only to take what they need and not what they want. Individuals can’t think of borrowing with the hope that they will have the cash to pay back the advance, later on, he/she have to be certain about the efficiency of the funds and the repayment is within a reasonable time.
In a scenario, one feels contented pursuing a merchant cash advance to fill a short-term cash flow gap, acquire a significant item for your business growth, cover receivables that are due, or late, only then we can enlist some great objectives why it is an excellent idea.
A merchant cash advance can be the best financing tool for small business owners who are looking for a trustworthy source of capital that suits their requirements with normal business loan sources when the market seems drying up.
Get Quick Funding
The first step in securing the deal is to pass the survey; the survey questions are ways the lending company uses to get a glimpse of applicants’ capability. Once the survey phase is completed, next is to fill out forms of your intent and reasons (most companies require). If the application is approved and validated, one can get the funding with 24-48hrs. But often, the above process could take weeks to complete because the merchant company would want to evaluate the applicants’ conventional bank loan or line of credit, which can take months to be accredited.
Manage Your Cash Flow
What determines every business longevity is its cash flow. However, when it comes to usual financing, borrowers often find their cash flow hindered by large monthly payments, which arises from difficult conditions set by the lender earlier. Escaping the financial crisis, most banks will seek a one-to-one deposit to loan ratio; this means one has to have as much cash reachable as he/she was looking to borrow. Thus it’s crystal clear to say a merchant cash advance is a flexible financing solution. A merchant cash advance can serve as part of the individual’s overall financing approach. It can be a plan.
More Time and Less Stress
Time is something that, if wasted, it can never be regained; money does come and go. Hence, searching for a consistent and reliable source of business financing should not consume all of the valuable hours in a normal workday. One shouldn’t stress about making payrolls and bills. He/she should opt to do something constructive with a merchant cash advance. But to achieve this, one needs to submit an application and proper documentation, offer the essential financial documents to ease the underwriting process and get back to running your small business smoothly.
Transparent Underwriting and Fees
A common misunderstanding about cash advances is that they usually come with excessive fees; however, this case is different. The fees charged on a merchant cash advance differs based on numerous factors such as the average advance rates, industry, credit-worthiness of borrowers, unsettled invoices and the number of invoices submitted consistent with duration. The more invoices produced, the more deposits you take in, hence, the better your credit score, the more useful the rate becomes.
It’s smart to check around for the best deals possible. However, it is important not to submit applications to a couple of lenders because, doing so, one runs the risk of more than one credit on his/her profile. A reasonable lender will work with any small business borrower to make sure that they recognize precisely what these charges mean and also to reduce the impact these changes may have on them.
Modify as per the Seasonality
It’s always good to relate your cash advance lender the situation of the business. A good cash advance lender completely understands your business’ creditworthiness, financial situation, experience and collateral because these factors can affect the ability to pay down debts. So, if ever the business has periodic fluctuations, the business owner ought to bring it to his/her cash advance lender.
In conclusion, virtually every small business owner in every industry need capital to survive. Although there are various working capital options available, though getting a fast business loan is very hectic and at the same time not everyone is eligible for a loan.