A merchant cash advance is a great way for businesses to get a quick shot of cash when they need it. With the economy improving many companies are still going to need cash advances because equipment will still break, opportunities will still come up, and emergencies will still happen. With this in mind, this article will take a look at how merchant account cash advances work, when they should be used, and how to get the best rate on them.
Businesses struggle all of the time and have to turn to short-term loans like cash advances and factoring
, but relying on them is a recipe for disaster. If a business is continually falling back on these loans, it's time to evaluate their business model to figure out how to either spend less or make more money. I know that sounds way easier than it actually is, but success is never built on short-term loans.
How The Merchant Cash Advance Loan Works
Merchant cash advances
work by advancing a company money based on their future credit card sales. This option is mostly available to businesses that rely heavily on credit card transactions, such as restaurants and retail shops, but is becoming more common with online retailers and other non-traditional business. Each lender has its own terms, but generally your credit card sales are averaged over a set period of time and compared to the same time periods of previous years to determine a cash advance amount. There isn't a credit check involved, so companies that have bad credit can still be approved for these advances.
Merchant credit card cash advances are very similar to payday advances for consumers, and both industries are very loosely regulated. Luckily, many businesses have long-term relationships with merchant cash advance companies, so predatory lending and extreme penalties aren't as common.
Merchant cash advances differ from factoring by relying on credit cards, rather than invoices that have yet to receive payment. Factoring is a great option for companies that don't rely on credit card sales.
When To Use Merchant Cash Advances
I'm sure you're reading this article because you already need a cash advance, but there are many different reasons why a business would need one, including yours. The optimal reason for a credit card cash advance is when money is needed to grow very fast. Unfortunately, that isn't usually the case. The most common uses for cash advances is equipment failure, building repair, or emergency money.
Many seasonal restaurants rely on cash advances to make it through the off-season months. This is a strong plan, as long as they can be sure the season or tourists will come back!
Get The Best Deal On Merchant Cash Advances
Like I said earlier, there isn't a lot of regulation on the cash advance industry, so no two companies are going to have the same terms. The best way to get the best rate is to shop around. There are three major factors to consider while doing this:
- How much can they lend?
- How large is the fee?
- How fast can you access the money?
If you can find a company that meets your needs on questions one and three, the fee may not be important. Clearly define your needs before making a final decision.
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