Understanding How a Merchant Cash Advance Works

April 10th 2016 at 3:30pm Published by sharpshooteradmin

Merchant cash advances are proving to be the best funding solution for businesses looking to get their hands on some extra finance. A good merchant cash advance allows you to get extra deposits in your account for an upcoming expense, which you can eventually pay back through your daily sales, without any extra interest or complexities.

You can pay back the merchant cash advance by using your monthly payment sales, as they come to you. This means that you will be paying a fixed percentage of every sale that you score, rather than paying fixed monthly payments.

Let’s imagine a situation, where you have poor revenue generation immediately following the process of acquiring funding. Your revenue streams are not where you would want them to be, and your business suffers as a result. Not only do you have to use the limited revenue for funding operations, but also have to pay a fixed payment back on the funding. This setting can mess your business up and can lead you into a vulnerable state.

A merchant cash advance does not work this way and allows you to make flexible payments on the advance money you have taken. You can make payments by deducting a specific percentage of the revenue you make. For instance, if you are making $100 in revenue for a period and your agreement is to pay 15 percent of it towards the repayment of the advance, then you will have to pay $15 to your funder for every $100. This will allow you to safeguard your interests, without giving fixed payments that you aren’t able to afford or support at any cost.

The percentage your funding agency charges you on the merchant cash advance can be anywhere around 4 percent to 30 percent. The percent is the most important number is it determines just how much of your revenue you would be paying to the funder.

Selecting the Amount

The maximum amount you can get from a merchant cash advance is dependent on the revenue you generate on a monthly basis. If your monthly revenues are around $25k, then you can get over $30k as part of this advance. The rule of thumb here is that every business should be able to get 125 percent of their monthly revenue as maximum advance.

This kind of payment is good for you to buy new equipment or purchase additional inventory if you have peak seasons coming up.

To qualify for a merchant cash advance your business should meet the following qualifications:

  • Must be in operations for over 90 days
  • Has revenue of over $10k per month
  • Located in the country of the merchant

With this information you can now go for a merchant cash advance for your business.