Do you want to get a merchant cash advance? If your business is struggling financially, or you could use a small injection of cash, you may be considering this popular financing option, but should you get an advance? According to FSB, 99.3% of companies in the private sector are small businesses, so this issue is probably relevant to a lot of different business owners. There are arguments to be made both for and against, and the best course of action is to carefully consider both sides before making a final decision. Who knows, maybe it’s your ideal solution, or perhaps you are better off with an alternative.
What Is A Merchant Cash Advance?
If you are not familiar with merchant cash advances by now, you should know that they are a financing solution for small to medium businesses. As the name suggests, this is not a typical loan, but an advance, and the difference lies in the terms of the transaction. You can apply and receive money for your business, just like you would with any traditional type of lending.
However, when repayment time comes around, you won’t be repaying in fixed instalments, but in a fixed percentage, according to your sales. In addition, the repayments will be made exclusively from income you make from credit card and debit card transactions. Requirements and documentation include 12 months’ worth of transaction history, as well as a minimum amount in income from credit card and business card transactions.
Should You Get A Merchant Cash Advance For Your Business? Why?
First, let’s consider all the reasons why merchant cash advances may be a good idea for your business. What can they offer you? Are the advantages enough for you to opt for this sort of financing?
The repayment is flexible
The first thing to point out is that the repayment method is quite different from normal loans. Instead of making regular, fixed payments, you pay the money off in a fixed percentage. Every single day, you are going to pay a small percentage of what you make out of transactions with credit cards and debit cards. That means that the amount you repay will actually fluctuate depending on how much you make in a day. You never run the risk of not being able to afford your repayment, because it’s always going to be proportional with the amount you make.
You don’t need to secure it
The other thing that can serve as a major advantage is the fact that there is no real need to secure this money. You do not need to provide any sort of collateral to secure the loan, there is no increased interest rate, and you don’t really need to have good credit. That is because the lender is not in any real danger of losing out on the money you borrow. Since they automatically take the repayments out every day, they have access to your accounts and you cannot default on the loan or skip payments, make them late, etc. The Money Advice Service has more information on the difference between secured and unsecured loans.
Should You Get A Merchant Cash Advance For Your Business? Why Not?
What about disadvantages? What’s negative about merchant cash advances? What should put you off them?
Your business needs to have been operating with credit card transactions for at least 12 months
One factor that may take you out of the running from the very beginning is the fact that in order to be approved for merchant cash advances, your business needs to a) operate with credit card and debit card transactions and b) to have operated with them for at least 12 months. You see, when you apply, you need to provide the lender with the history of these transactions dating back at least 12 months. Based on this, they make an idea on your projected income for the foreseeable future and they can judge how much they can allow you to borrow.
You must make a minimum amount in income from credit card transactions
The other thing you need to keep in mind is the fact that there is a minimum amount you will need to make from these credit card and debit card operations. Because the repayment of the money you borrowed is made exclusively from this income, the lender needs to make sure that you can actually afford to pay it back. Unfortunately, that means enforcing minimum amounts, which can severely limit the selection of businesses that can be approved for this financing solution. This minimum will differ from company to company, though, so do make sure to browse several options before giving up or settling on one.
All in all, whether or not you should get merchant cash advances is a decision best left entirely up to you. There are certainly both pros and cons to consider, and the suitability of this option will depend on what kind of business you have, how it operates, and what your financial needs are. You may consider that other similar options would work better for you, or maybe a business cash advance is exactly what you were looking for. Either way, make sure to take the time to review positives and negatives before making a decision, as well as any alternatives that may fit your criteria.
If you still can’t decide, have a read through the great guide put together by the guys over at Merchant Cash Express They are a trustworthy company based in the UK and offer excellent rates for fast merchant cash advances and there service is free of charge.