Merchant cash advances are a member of the group of financing products that deliver money quickly to your bank account. Even if you have a meticulous plan for your business expenses, this speed can be crucial.
Many small-business owners shun the idea of planning. Forecasting is difficult for something so unpredictable and mercurial as entrepreneurship. Instead of spending time crunching numbers or staring into your crystal ball to predict the future, you should be doing everything possible to stay limber. You’ll be able to dodge, duck and weave as you please.
This sentiment is true, but the power of planning cannot be underestimated. Dwight Eisenhower said, “Plans can be worthless, but planning will always be everything.”
You’ll be able to do two things if you try your best to predict what’s going to happen. You’ll be able to plan your finances for the recurring costs you know you can count upon. These expenses include rent, utilities, marketing, inventory, and other recurring costs. You also put yourself in a position where you can save money for things that you don’t know.
Unexpected expenses vary depending on the industry. Examples of unexpected expenses include equipment upgrades, property repairs, vehicle replacements, inventory problems, and equipment replacement. You may need additional money to pay creditors or keep your business going during slow seasons. You might also want to capitalize on a new business opportunity.
Cash flow is a significant stressor for businesses due to both recurring expenses as well as the challenge of unexpected costs. According to research, the majority of small businesses in America have less than enough money to cover their average outflows for 27 days. The top 25% of businesses who participated in the study had enough money to last for 2 months.
Cash reserves are clearly in short supply. It’s not a lack planning that is the problem. The problem is the small profit margins of small businesses. It takes money to make it. It pays to be able to look at your options when you have to quickly get cash.
Merchant Cash Advances are a great source for fast cash
Previous generations of entrepreneurs faced unexpected business expenses with limited options. If you have rich family members who are willing to lend money, this is a good option. Many would seek loans from their bank. Problem with this route to the bank was that over half of all applications were denied. The approval process can take up to several weeks.
The Small Business Administration has been a favorite loan source for decades because of their attractive terms and higher approval rates. They fund much slower than traditional bank loans and can take up to three months to reach your account.
Merchant cash advances, also known as MCA loans, are a great option for those who need quick cash. This type of financing can be used to finance up to $200,000. This amount is not as much as the millions you could get from equipment financing or a business term loan, but it’s still fast money. You won’t need a lot of money here. It’s enough to have a small amount of money that will meet your immediate needs.
You can expect rapid action once you have submitted your application for a merchant money advance. If your request is approved by the lender, money can be in your account within 24 hours. This funding is much faster than other options that can take up to a week or more to fund.
The merchant cash advance was designed to be efficient and speedy from the top. The repayment terms will also be reduced. The repayment term for the money is expected to be 2 years.
How Merchant Cash Advances Work
Merchant cash advances are a great way to ensure the success of your business. You can leverage your future credit card processing receivables to get the money that you need. Your repayments begin once you have received the money from your lender. The lender will keep a certain percentage of your credit card deposits each day.
It’s not a good idea to imagine credit card receivables being taken daily by the lender. It’s important to remember that the percentage is not a lump sum. This means that if your company is in a slow period of growth, you will get less money. When business is flourishing, more money will be extracted.
It’s important to remember that a merchant cash advance payment is considered a sale transaction due to its unique structure. It won’t show up on your credit report as a traditional loan.
There are two ways to repay a merchant cash advance:
- Split withholding repayment is: This method has the highest popularity in the United States. This allows a lender to take a percentage of your daily income each day.
- Lock-box repayment: This alternative method allows your daily deposits to go directly to the account that the lender manages. Each day you will receive your share from the deposits of the previous days.
Merchant cash advances are free from restrictions on usage. MCA loans are great because they offer flexibility that isn’t available with other forms of financing like equipment financing or business acquisition loan. You know how unpredictable cash flow requirements can be. It could be buying a delivery truck, fixing a refrigerator, hiring a receptionist, fixing your office roof, or purchasing a business. A merchant cash advance can provide cash without any restrictions on how it’s spent.
Merchant cash advances and expedited financing are not any different. You should expect interest rates to start at 18% if you want fast money with no restrictions. The urgency of your financial needs will determine whether an MCA is right for you or a traditional loan option such as a small-business loan or line. An MCA may be a better option if you need funding immediately. However, it is important to have sufficient cash flow to repay the loan.
Qualifying for a Merchant Cash Advance
A merchant cash advance has almost every aspect that is easier than traditional loans. It should not be surprising that the application process is quick and efficient. You won’t have to submit a lot of paperwork for most loans. Instead, you will enjoy a simplified application process. You will need to provide bank statements for at least 4-6 months and other documentation in most cases.
These types of financing are based upon the future and present of your business. Things like credit scores or long financial histories don’t get the same attention as your present. Lenders will consider you a safe choice if your business is doing well. They will focus their attention on your daily income, which is what they consider their meal ticket.
A merchant cash advance is a great option for owners of small businesses that haven’t been around for a while. If your credit card transactions have been steady, you won’t face any problems. Your monthly transactions must exceed $2,500 to be eligible for approval.
The approval process is heavily based on your business performance. Lenders don’t dig into your past. This review process benefits your credit score as there won’t appear any inquiries.
You won’t have to take as much personal risk due to the structure merchant cash advances.
Forbes “One of the benefits of an MCA, is that a personal guarantee of the money isn’t always required.” The advance can often be in the name of the business. This means that your personal credit as a business owner will not necessarily be attached to the advance, and you may not personally be liable. A personal guarantee or collateral may be required depending on the amount you request. A guarantee is not required if your monthly income stream stays within 100 to 150%.
You can expect to need a guarantee if you request large amounts of money. You’ll also need to provide more documentation to the lender to assist them in making an informed decision.
- Returns on taxes
- Summary of AR (accounts receivable).
- Statement of profit and loss
Don’t lose sight of the point. It’s going to be much easier than applying for traditional loans, even if you have to attach additional documents.
Choosing the Best Merchant Cash Advance
It is important to do your research before deciding on the financing option. Merchant cash advances don’t have as many cost factors to consider. You can quickly compare rates and select the best ones for closer inspection. You should carefully read each lender’s agreement to find any irregularities. After you sign an agreement, the last thing you want to happen is for something unexpected to occur.
Be aware that funding times can vary between lenders. This variable could be a problem for merchant cash advance options if your business needs are urgent. The amount that you borrow will also have an impact on the timeframe. Although most lenders will transfer the money within 24 hours, larger cash advances from lenders may take up to a week.
Progressive Business Capital offers same-day pre-approvals. Once approved funds can be received within 24 hours of merchant approval. Have questions about MCA’s? To discuss further, please call at (800. 508-4532