When small businesses are in need of urgent cash, it hardly makes sense to contact a corporate lender or a bank for traditional loan options. While most don’t qualify, even those that do will have to go through a lengthy application process and wait for a long time to obtain the funds. A more appealing and timely option is a merchant cash advance.
Not only are merchant cash advances available quickly, they are also very easy to qualify. They are available to businesses such as restaurants and retail stores that have a decent volume of credit card sales transactions on a daily basis. Even businesses with bad credit can get merchant cash advances quite easily.
The term might still be foreign to many; but the merchant cash advance industry has been growing in fact at quite a rapid pace. It was just a few providers you would have found a few years ago; today merchant cash advance is a 10 billion dollar industry, with many providers operating from different parts of the world.
If you are in need of emergency financing to run your business smoothly, you can find a merchant cash advance provider quite easily. There are many that contact businesses like you by purchasing merchant cash advance leads from professional lead generating firms. You could go with any of them or even find out from your credit card processing company if they can provide you with the required advance. Nevertheless, before doing so, there are three things you need to consider:
Evaluate your Requirements
Many small businesses apply for merchant cash advances for a variety of purposes like purchasing new equipment/inventory, business expansion, store renovation, paying up salaries/rent/utility bills and marketing/advertising. Basically, they work very well for emergency needs. However, if you want to furnish your office with the money you obtain from merchant cash advance, it is wiser to go for a traditional loan. It could nevertheless be the only option if you have been struggling with bad credit.
By taking out a merchant cash advance you are actually giving away a decent portion of your future credit card sales. Hence it is important to use this amount wisely. You will have to prioritize your requirements and take only that amount that you actually need. If there are certain items on your list that could be postponed for a few months, they can be satisfied by going for a traditional loan at a lower rate of interest.
Understand the Repayment Plan
Merchant cash advances work very differently when compared to traditional loans. The repayment will start as soon as you receive your advance. There are no fixed monthly payments here. As soon as a credit card sales transaction happens at your point of sale, a pre-agreed percentage of the amount gets transferred to the merchant cash advance provider’s account automatically. This transfer happens with every credit/debit card sales transaction until the advance you have borrowed has been completely repaid.
There are certain things you need to look for when it comes to repaying your cash advance. First thing is to find out if you would be able to pay back the advance through your future credit card sales, within the time period specified. If your sales are predictable and if they are consistent throughout the year, you should not have any problem estimating your financial timeline. However, if your business is seasonal, you may have to look for providers who are flexible with respect to repayment time periods.
Another thing you need to consider before signing your merchant cash advance contract are your business expenses and other debts. You will have to check if you can still manage meeting all these, without the chunk of your future credit card sales. You may even need a business plan to increase your business or improve your profitability until you pay back your advance completely.
Go through the terms of the contract completely
You may be signing many papers on a daily basis as a small business owner; but this is one paper you need to pay special attention to. You would want to go through it thoroughly, while paying close attention to the service agreement. It is this service agreement that details your payment plan, charges and the terms that you have agreed upon. There are two things you need to specifically look for, here:
- The Post-signing fees:In case you need to buy new credit card equipment or switch to a new credit card processing company in order to obtain merchant cash advance, you may have to pay up some post-signing fees. Then there are also the service fees and the UCC filing fees. You may have to consider all these before signing your contract.
- Interest rates:Merchant cash advances are calculated based on factor rate rather than an interest rate. It could be generally between 1.14 and 1.48. When converted to APR, this rate may be equal to as low as 15% or as high as even a triple digit rate. Nevertheless, it is very important to compare these rates with the interest rates that you pay on traditional loans. This will help you understand whether you are getting into a good deal or a real bad one.
Time is very precious in the world of business. Merchant cash advances make it possible for small businesses to attend to their financial needs within time. Nevertheless, before you sign the contract with a merchant cash advance provider who contacts you via merchant cash advance leads, it is very important to check out all the details and understand the contract inside out.