It can be risky to take merchant cash advances. However, they can be a helpful tool if properly used. Operating a business needs working capital and routine cash flow. Each business goes through times when money is tight and sales are down. If this occurs, a lot of businesses look for outside funding sources. A merchant cash advance is one type of funding.
Today, we are going to share with you some of the things you should know about merchant cash advance services.
Merchant Cash Advance
This is a source of short-term business funding for businesses that aren’t able to acquire funding from other sources, such as banks. These advances are loaned against credit card sales in the future. Almost every single one of them is repaid within 6 months to 1 year.
How to Apply for a Merchant Cash Advance
Your business needs to have day-to-day credit card transactions and proof of at least 4 months of credit sales if you want to apply for a merchant cash advance. A lot of merchant cash advance providers need that your credit card sales every month be around $3,000 and $6,000. This depends on the amount of the advance. This enables the lender to verify that you can repay the advance.
Reasons to Utilize Merchant Cash Advance
While the high rates of MCAs mean that a lot of financial professionals do not recommend them, businesses might find that there are excellent reasons to use it over financing from other lends, such as banks. This includes:
- Merchant cash advances are available to businesses that require cash right away, cannot wait for a release of funds or loan decisions, or do not qualify for a traditional bank loan.
- Applications need fewer documents.
- With a traditional MCA, you won’t have to pay a minimum. If you’ve got a period with low sales, it means that you’ll pay less to the lender.
- Repayment is automatically performed. Thus, there’s no chance of late fees from forgotten due dates that often happen with bank loans.
- You will not need collateral. There isn’t any legal liability if the business fails and the cash advance isn’t completely repaid. The assets of the business owner aren’t at risk, unlike a traditional bank loan.
- You’ve got almost immediate access to money. Usually, advances are made within 1 day to 2 days.
MCAs are a workaround to businesses that aren’t able to get a traditional loan, have poor credit, and much more.
Does it Affect Credit Score?
Usually, MCAs are available for business owners with no or poor credit. However, this does not mean the provider will neglect the credit report that you have. In general, merchant cash advance companies will perform a background examination. This will be part of the application. In general, this won’t affect the credit score that you have.
Before issuing the money, a couple of providers might perform a hard credit check. This can affect your credit score possibly. If you don’t want this to happen, ask the provider first.