Merchant cash advance: what is it and when can you use it?


Businesses across the country currently have around 1 million merchant cash advance accounts open, according to data from the Consumer Financial Protection Bureau. Although it is certainly not as popular as others funding sources like credit cards, term loans or factoring, it has helped a significant number of businesses access the capital they need to grow or cover their operating costs.

As with any major financial decision, it is important for entrepreneurs to think carefully about all the potential advantages and disadvantages of this type of financing, which is actually more like a sales transaction than a loan.

For example, many financial experts in recent years have expressed concerns about the lack of regulation in the cash advance industry. Since this is not technically a loan, it is not subject to the same rules that other banks and online lenders must follow. This can therefore come at a significant cost and lead to less than favorable conditions for small businesses. However, the process also contains far fewer requirements and hurdles than you will find when trying to work with a traditional bank. These services may therefore offer additional options to some small businesses that do not have access to traditional financing.

Essentially, this type of transaction can help businesses in certain situations. But it’s not good for everyone. In order to make the best possible decision for your business, you must first understand exactly what a cash advance from a merchant involves in order to determine whether or not it meets a major financial need for your business.

Asking the question, what is a merchant cash advance? you should start by understanding what financing options are available for your business. Financing your small business is having the right information to make a choice that is right for you. The merchant cash advance is perfect for businesses that meet certain criteria. Small Business Trends spoke to Hanna Kassis about Segway Financial on who should use this financial tool and how they should go about it.

What is a merchant cash advance?

So what exactly is a cash advance from a merchant and how can it help your business?

“A cash advance to a merchant is a one-time injection of capital in the form of a lump sum into a business,” says Kassis. “This is in exchange for a fixed fee over a specified period of time. “

Like other financing products, the merchant cash advance has a better scenario for small businesses. These are the best for the short term. They depend on the cash flow of the business, so no collateral is required.

Typically, the amount of funding is based on an average of one month’s bank deposits or credit cards. In other words, you will need a stable and sufficient earning history to apply for any of them. Small businesses can often get the money quickly in one to three days. Typically the amounts are between US $ 60,000 and US $ 70,000. However, you must have a stable monthly income of $ 10,000 per month to be eligible.

More information on merchant cash advances

Here is some more information about Merchant Cash Advances that you may find helpful.

Kassis also says that there is a specific set of small businesses that benefit the most from a merchant cash advance.

“You have to have a clear path to income if you want to take that money,” he says, adding that business owners have to be prepared to cut their cash flow.

“All of a sudden you’re giving up 10-20% of every dollar you get,” he says.

Kasis suggests that there are a few checkboxes to make sure that before you take any of these advances, you can repay the money. Buying inventory and returning it works. Or, you can schedule a cash advance from the trader to cover the low season when you are fairly certain that historically better earnings are coming.

What type of business would a merchant cash advance be good for?

So what would be an example of a good cash advance business for traders?

“This is for new businesses and those that haven’t been in business for 6 months, as well as businesses with less than 600 FICO owners,” Kassis said. A cash advance is also a good choice for store owners without a lot of lasting assets.

This is a good idea for industries with a high number of transactions per month like restaurants, bars and many B2C businesses like retail and even nail salons. One of the criteria is to be able to foresee a constant flow of customers.

Either way, it’s important to get as much information as possible about cash advances from the merchant before deciding if this funding option is right for you.

When is the merchant cash advance popular?

If you are still not sure whether your business is a good merchant cash advance business, consider this.

The merchant cash advance is also a good choice for businesses that can rely on a cyclical income stream. Kassis says there is a spike in businesses seeking cash advances for traders before the holidays.

Why is the merchant cash advance a good choice

Say you are launching a new product line or need extra money to create a new customer. The merchant cash advance is the perfect choice as you can get less than $ 100,000 on the same day in some cases.

It’s a great financial band-aid if there’s a broken water line in your restaurant that needs to be fixed quickly. Best of all, small businesses just need to complete an application and provide four months of bank statements to get started.

So when you ask the question, what is a merchant cash advance? start with a clear understanding of how this financing option can help your small business survive and thrive.

Image: Segway Financial

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