When it comes to funding options for small businesses, the concept of a merchant cash advance is sometimes overlooked. This type of lending arrangement is often easier to manage than receiving a business line of credit from a bank and easier to obtain than a business loan. Lenders who offer this type of advance usually do not require any collateral and base the amount of the loan on the average amount of revenue your company generates.
Why Would I Want A Merchant Cash Advance?
One of the chief benefits of this type of advance is that you get to use your revenue stream now rather than waiting for payments from your clients. The money can be used for just about any business’ need you can imagine. Small business owners can use the money from the cash advance for several important functions, such as:
- paying outstanding debt related to general operations
- purchasing new equipment for the office or the production floor
- stocking up on certain inventory items while the cost is low
- opening a new office or expanding a current location
Using a merchant cash advance for these types of expenses can make a big difference in your business. Since debts are retired promptly, you are protecting the credit rating and score of the business. At the same time, you can acquire assets that help to increase productivity that in turn means more revenue for the business.
How Does the Advance Work?
This type of cash advance involves assessing the company’s monthly income stream. The idea is to make sure the advance is within the company’s means to repay within a reasonable period of time. Since the process involves no credit checks, the advance is great for companies emerging from a rough economic period or even businesses in their first year or two of operation. As long as you can provide enough data to show a steady amount of returns, there’s a good chance the company will qualify for an advance.
When it comes to repaying the merchant cash advance, lenders offer two basic options. One calls for interlining with your receipt of credit card payments from clients. A percentage of those received payments is diverted to the lender and applied to your outstanding account balance. This allows you to be repaying your advance every time a customer pays you.
An alternative is to set a fixed payment, either on a weekly, biweekly, or monthly basis. This approach can work well for companies that receive customer payments in several different forms, including checks. In addition, you always know how much you must pay to settle the debt each month, which can work very well in terms of keeping your budget on track.
If you own a small business and could use some spare cash to take advantage of an upcoming opportunity, look into a merchant cash advance as a way of enhancing the business operation. You may be surprised at how easy this type of funding can be obtained, and how easy it is to manage the debt responsibly.