Expand Your Business with Merchant Cash Advance
August 4th at 6:02pm Published by sharpshooteradmin
Having access to the right funding makes it easier to support business growth. There are many different choices out there, but a merchant cash advance might be one you want to consider.
Here’s how it works:
A merchant cash advance provider gives you an upfront sum of cash in exchange for a slice of your future sales. Instead of making one fixed payment every month from a bank account over a set repayment period, with a merchant cash advance you make daily or weekly payments, plus fees, until the advance is paid in full.
If your business needs to borrow a large sum of money, most funders will require collateral, even if you have an excellent credit score. Merchant cash advances are backed by future revenues, which acts as your collateral. Overall, this product is best suited for businesses that primarily accept credit cards.
How to Use a Merchant Cash Advance:
1. Additional Cash Flow
When running a business, there might be times that you don’t have enough cash flow to afford all your expenses. For example, perhaps a customer has 30 days to pay their bill, but your employees are expecting a paycheck by the end of the week. A merchant cash advance offers a temporary cash infusion that you can get quickly to cover short-term operating expenses.
2. Cover Unexpected Payments
There are many reasons a business owner might choose a merchant cash advance over traditional funding. One benefit is a shorter application process and time to funding. If you need cash within a few days to cover an unexpected lump sum expense – an emergency repair, for example – there is essentially no faster way to borrow the money than a merchant cash advance.
3. Purchase Inventory
Businesses that regularly make credit card sales, such as restaurants and retailers, may use a merchant cash advance to purchase inventory and remit it with a percentage of the money made from selling it. In this situation, it makes less sense to consider financing cost on an absolute basis. The merchant cash advance enables the business to sell, and profit from, inventory that they would not have otherwise.
4. Use for Seasonal Costs
If your business has a particularly busy season, get a merchant cash advance prior to this.
Bonus tip: Merchant cash advances are not tax-deductible, nor the payments that are used to pay back the cash advance provider. Generally, for funding, the borrower can deduct the cost of interest on the funding. However, merchant cash advances do not charge interest; instead of cash advances charge fees.