Merchant Cash Advance: How Does it Work and How Can you Apply?

OlufisayoSeptember 15, 20220214 views

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The problem that many small business owners face is that they are generating a decent turnover with a good number of card transactions being processed every day, but they don’t have enough assets to qualify for traditional banking support. That means there is a potential cash flow issue as you try to cope with the delay between taking a card payment and getting the money in your bank.

An innovative solution to that problem has been created with a product called a merchant cash advance. It may be a funding option that you have not encountered yet. Which is why you will probably be asking what is merchant cash advance?

Here is an overview of how the service works and how to apply to take advantage of a merchant cash advance facility.

How it works

The way a merchant cash advance works is fairly straightforward. If you are accepting card payments from customers you can apply to a lender in this market to provide your business with a cash advance.

The amount you can borrow will be based on the volume and amount of card transactions you are putting through your terminal on a regular basis. Using that information the lender will offer you a cash advance and start to deduct repayments as a percentage of each card payment you put through your terminal.

No typical repayment terms

One of the major differences with a merchant cash advance, when compared to other borrowing options, is the fact that repayment of your advance could typically be anywhere between three and eighteen months.

As the amount borrowed is being repaid as a percentage of your card transactions, the more card payments you take the quicker your loan amount will be repaid.

It is usually about 10% of your card sales that is deducted until the amount borrowed has been repaid in full.

You do also have the option of repaying your merchant cash advance by withdrawing funds from your bank account. That allows you to calculate a fixed repayment schedule rather than relying on card sales to clear off your loan.

Easy to apply

There are a number of benefits associated with the concept of a merchant cash advance.

In particular, it offers flexibility with repayment terms as you make your repayments based on card payments taken. It is also easy to apply for a cash advance. It is unsecured lending, so you don’t need any assets, and it is possible to get approval within 24 hours.

The application process is simple. You will not be asked for a business plan like when you apply for traditional business financing. Instead, the lender takes a look at your sales history.

They should be able to view your merchant account statements online. Once they have that data they will make you an offer of finance.

A merchant cash advance is easier and quicker to apply for and doesn’t have the same strict lending criteria compared to applying for a business loan or bank facility.

If you have a business that takes card payments you will be able to apply for a merchant cash advance. The money you need could be in your account the next day.

Photo by Nathan Dumlao on Unsplash

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