If you’ve been in the market for a loan or have gotten tired of bootstrapping your small business, there is another available option. It’s not yet well-known, but under the right circumstances is a viable route that’s worth taking a minute to understand.
Here are answers to small business owners’ most common questions regarding merchant cash advances.
What is a merchant cash advance and which businesses might most greatly benefit:
- If you have a strong and stable business, but still can’t get access to capital – A merchant cash advance, through the factoring of future sales, is a quick and flexible financing option that can provide your business with needed capital in days, not months like traditional lenders. However, a cash advance is only appropriate for businesses that have a strong business outlook. Businesses in decline, looking to restructure existing debt (except when consolidating high-cost debt), or resolve other structural issues are not good candidates for a merchant cash advance. Businesscash.com counsels these merchants regarding options for more appropriate sources of financing.
- If your business has significant credit card sales – The continuity and predictability of your credit card sales is a business asset that can be used to gain access to capital. For example, we purchase a business’ future credit card transactions and advances that money to the business. After receiving the advance, we deduct a small, fixed percentage of the daily credit card sales until the advance is paid in full. The business keeps 100% of their cash and check sales.
- If you are a highly seasonal business – Seasonal businesses need cash on a seasonal basis and require flexible repayment schedules to match their business activity. Unlike a loan, the repayment schedule of a future sales factoring contract is tied to the amount of the merchant’s future sales. This allows a merchant with seasonal sales to gain access to much larger amounts of capital and decreases the merchant’s risk of default of having to repay a high fixed amount per month during their slow season.
- If you don’t have significant personal or business assets – Banks and other traditional lenders usually require physical assets. A cash advance based on a factoring contract usually only requires a security interest in your future sales.
- If you have not been in business for more than 5 years – While most banks and other lenders require 3-5 years minimum business experience, most merchant cash advance companies will provide financing after just the first year. To qualify with Businesscash.com, you need only to have been in business for one year and not in bankruptcy within the past 6 months and process at least $5,000 in credit card sales each month for the last four months. We even have a starter program that only requires six months of business history and that the merchant is not currently in bankruptcy.
- The bank won’t lend you business money due to your personal credit – Banks reject 50 percent of small business loan applications typically based on the owner’s credit. This happens because banks are relying on the credit quality of the owner (the guarantor) and the value of collateral to support the credit decision. Banks can overlook and ignore good businesses because they don’t look at the overall health of the business based on its sales. We focus credit investigations on the health and future prospects of the business first and then consider the quality of the guarantor, the collateral.
- If you need cash quickly – For example, you get hundreds of unexpected orders and need to buy more inventory or supplies or need to work on renovations. Merchant cash advance companies can fund in 5 – 10 days. A bank will typically take more than one month to complete a loan.
Funding options are definitely opening up and should continue to get better as the economy improves. Merchant cash advances are becoming more mainstream and now you know why.