Businesses today are increasingly turning towards online platforms to conduct all forms of transactions. As such, more and more small businesses with little or no assets are springing up every day. Due to the nature of these of these enterprises, getting financing is sometimes very difficult and sometimes even impossible.
Merchant cash advance is a fairly new concept of business financing that caters to all businesses that conduct credit card transactions.
What is a Merchant Advance?
A merchant cash advance is an alternative to the traditional form of business funding, usually bank loans. Under this form of financing, you are given cash upfront if you agree to make repayments of what you owe from the daily credit or debit card transactions you make until you have settled your debt. Merchant cash advance is thus pegged on what is commonly referred to as “credit card factoring.”
Merchant cash advance is a quick way of pumping cash into your business so that you get all the resources you want. Your needs might range from creating fast output, growing the business, or any other need that you might have. Once a merchant cash advance is approved, whichever way you utilize the funds depends entirely on you.
How Merchant Cash Advance Works
Although merchant cash advance has been traditionally for businesses that revenues rely primarily on credit card transactions such retail shops and restaurants, this is no longer the case. Currently, merchant advances are also available to enterprises that do not rely on credit card transactions very much.
Technically, merchant cash advance providers regard their form of financing as a loan. A provider of cash advance will give you an upfront amount of cash, which you will be expected to pay back from a portion of your future sales.
The repayment of the advance is often structured in two ways:
- The merchant cash advance can be extended to you in exchange for a percentage of the future plastic transactions you make.
- You can also get a merchant advance and then repay by remitting or making fixed weekly or daily debit or credit sales from the business bank account. This form of repayment is called Automated Clearing House (ACH) withdrawals.
The second structure of repayment is the most commonly used in merchant cash advance. This is because they allow the merchant cash advance providers to market their products to enterprises that do not primarily rely on credit card sales.
Under the merchant cash advance form of funding, you do not have to make monthly fixed payments from your bank account. On the contrary, a merchant cash advance requires that you remit daily or even weekly payments, including the lending fees, until the time that you repay the advance fully.
The fees that a merchant advance provider will require from you will depend on your ability to make the payments.
Merchant advances are usually provided by financing companies that are run online. Due to their nature, they are often the most expensive form of financing in the market. Although expensive, many business owners have found this kind of business financing to be quite advantageous thus making the extra expense worth the while in the event of a shortage of funds during an emergency in a business. Consider trying out a Merchant Cash Advance today!