Can a Merchant Cash Advance Help Your Small Business?



merchant cash advance for business

Cash is to a business what helium is to a balloon. Without a steady supply, you cannot stay afloat — paying your suppliers, keeping your inventory stocked or growing your business. A merchant cash advance might be just what you need to get the capital that is so essential to your operations.

What Is a Merchant Cash Advance?

Many people mistakenly believe that getting a commercial loan from a bank is the only way they can acquire funds. That’s a fine mechanism for larger or more established enterprises or for those with stellar credit. But if you are short on collateral or have poor credit, there is another potential solution: a merchant cash advance.

In this financial product, the lender purchases a portion of your future credit card sales at a discount. You get a large lump sum of cash right after the agreement has been confirmed. In return, the merchant cash advance provider gets a portion of your monthly credit card sales — usually around 8 percent of your total transactions.

Who Doesn’t Qualify for a Merchant Cash Advance?

A merchant cash advance is not a good fit for all businesses. Typically, you will not qualify for this financial vehicle if you have a bankruptcy on file. You also need to have an established credit card payment processing system in place, and your business should have been in existence for at least one year, although there can be some exceptions to this rule.

Things You Don’t Have to Worry About

A merchant cash advance is a sales transaction, not a loan. For that reason, it does not appear on your credit report. In addition, because you do not need to put down collateral, you will not lose it should the worst happen and you default on the agreement.

Easy to Obtain

If you have ever applied for a commercial loan from a bank, you know the extent of the paperwork that is involved: bank statements, tax returns and comprehensive business plans. By contrast, obtaining a merchant cash advance only requires that you provide information about two things: your monthly credit card returns and the amount of time you have been in business. In general, you should have at least $5,000 in monthly credit sales and have been in business for a minimum of nine months.

Fast Response

In many cases, months can go by before a business owner learns if he or she has been approved for a commercial loan. By contrast, merchant cash advances only take a matter of days, usually a week or less, after which time you have immediate access to ready cash.

Response times can be even faster if you complete your application online. In some instances, you can get an answer in a matter of hours. If you are trying to jump at an opportunity or if you need to pay off debts quickly, a merchant cash advance is an option worth exploring.

Easy Approval Process

You might have poor credit, but is your business stable and are your sales regular? If so, you will be pleased by the way merchant cash advances are approved. They focus not on credit but on your company’s performance, generally over the past year.

Collections Based on Your Revenue

Unlike commercial loans that usually have fixed monthly payments, what you send to your merchant cash advance provider will fluctuate to some degree based on your sales during any given month. If your sales spike during the holidays, the provider also gets more; however, ebbs in profits during slow times of the year mean lower payments.

Risks of a Merchant Cash Advance

As with any product for sale on the open market, some merchant cash advance choices are better than others. This is particularly true for merchant cash advance providers because the industry is not strictly regulated. In order to obtain a reputable, transparent product, it is best to take heed of the old adage, “If it seems too good to be true, it probably is.” Vendors that boast 99 percent approval rates and “the lowest fee rates in the industry” deserve special scrutiny.

Finally, if the merchant cash provider does not have a website or a paid email account, this definitely raises a red flag as well as suspicions that the operation might be so fly-by-night that it does not even have a solid infrastructure in place. Much grief can be avoided by doing your homework and choosing a provider with a solid leadership team that has years of experience in the industry. When in doubt, don’t sign or click until you have consulted with someone you trust such as a mentor or an attorney.

Check with the Better Business Bureau and read both positive and negative testimonials from former and existing customers. Take a look at the company’s press room to learn how they have been portrayed by newspapers and other publications, and take advantage of social media to glean even more information. The more knowledge you have about potential providers, the more intelligent your final decision will be.

When you run a flourishing business, there are many strategies you can adopt to keep customers buying and cash flowing. Great service, innovative products and a payment processing system that automates inventory, customer loyalty and accounting functions are a great start. But when you need a larger infusion of funds in a hurry, a merchant cash advance can be just the vehicle that can bolster your already stable business and catapult you to the next level of success.