Small businesses that have challenges with staying afloat or dealing with invoices can turn to merchant cash advances. These will help them maintain a consistent cash flow for their operations. However, what is a merchant cash advance, and how does it help small businesses?
Merchant Cash Advance
A merchant cash advance is a sum of money given to businesses in exchange for credit card sales. Merchant cash loans differ from traditional loans in that they don’t have details like collateral or a fixed repayment term. The borrower can pay the advance as a percentage of their future sales. With these loans, the lender gives the business cash advance against an invoice and collects the invoiced amount and a fee for the advance later.
How They Help Small Businesses
Unlike traditional loans, businesses with no credit or bad credit or no collateral can still get credit through merchant cash advances. This option is suitable for companies who mostly use credit card payments.
Those who have tried and failed to obtain loans from other sources and failed can use them to their advantage. Another way that these advances help is by the payment methods. The lenders don’t have a specific amount of credit card sales that they take. They can pull a smaller amount of sales every month. Their money is at stake, too, since if the business fails, they lose the rest of their advance.
Merchant cash advances are typically not tied to specific monthly payments. The payment you make will depend on the amount of credit card sales you make in a day. A portion of these payments will pay for the advance and premium. If your business performs well, you can pay off your debt in less than a year. However, you will still have some leeway even if your sales are small. You don’t have a fixed payment date, so you can make the payments for as long as you can.
Merchant cash advances can be a source of cash flow for small businesses. They can help struggling companies stay afloat without demanding too much from them. Businesses that cannot obtain loans from other sources, like banks, can use these advances to keep their business running. All this is done with no need for a credit history or collateral.