You've probably heard of merchant cash advances, but you may not be sure if they're right for your business. In short, a merchant cash advance is a lump-sum payment in exchange for a portion of your future credit card sales.
If you're considering a merchant cash advance, it's important to understand how they work and whether or not they're a good fit for your business.
How Merchant Cash Advances Work?
Typically, merchant cash advances are offered by alternative lenders, such as online lenders or merchant service providers. They're usually easier to qualify for than traditional bank loans, and they can be funded quickly - often in as little as 24 hours.
When you're approved for a merchant cash advance, you'll receive a lump-sum payment. In exchange, the lender will collect a portion of your future credit card sales until the advance is repaid. The exact amount that's collected each day will depend on your total sales volume, but it will typically be a small percentage - usually between 10 and 20%.
For example, let's say you're approved for a $10,000 merchant cash advance. The lender will collect a portion of your future credit card sales until the advance is repaid. If you have daily sales of $2,000 and the split is 10%, the lender will collect $200 per day until the advance is repaid.
The biggest advantage of merchant cash advances is that they're easy to qualify for and they can be funded quickly. The biggest downside is that they tend to have high interest rates, so they can be expensive if you don't repay them quickly.
Is a Merchant Cash Advance Right for Your Business?
Merchant cash advances can be a good option for businesses that need cash quickly and don't have the time or credit history to qualify for a traditional bank loan. They can also be a good option if you have bad credit or you're unable to get a business loan from a traditional lender.
Merchant cash advance rates and fees
Merchant cash advance rates and fees can vary depending on the lender, but they're typically higher than traditional business loans. That's why it's important to compare offers from multiple lenders before you decide on a merchant cash advance.
You should also consider the cost of the merchant cash advance and whether or not you'll be able to repay it quickly. Merchant cash advances are typically repaid within six to 12 months, so you'll need to make sure you have enough cash flow to cover the payments.
If you're not sure if a merchant cash advance is right for your business, talk to a lender about your options and compare offers before you decide.