Merchant Cash Advance - Quick And Easy In Today's Tough Market
Merchant cash advances are more and more widespread in today's small business market
. The current economic status and airtight credit needs are large contributors to the increase in cash advances. It is difficult for businesses to get the funding that is necessary with the more and more strict conditions for normal business loans. Merchant cash advances are an unconventional means of obtaining working capital for day to day business requirements. So how does a merchant cash advance work? Let us explainMerchant Cash Advances are an option provided by a funding institution to a merchant that receives credit cards, most commonly in the retail or restaurant industry. The Merchant Cash Advance lending provider typically advances the entrepreneur a prearranged sum of working capital in exchange for a portion of their future credit card revenues.
For this illustration, let's take Jo's Diner. Jo might not have enough funds available to pay his employees or to buy new appliances for his kitchen. Say Joe needs $30,000 and he contacted a Merchant Cash Advance lender for the cash.
The lender would look at Jo's preceding credit card statements and determine if he is eligible for the advance. They would figure out an interest rate for the money advanced. The rate is most commonly more expensive than a traditional business loan because the advance is typically given to small business owners that don't have the credit or collateral to get funds from a conventional bank. If the cost for Jo's advance is 30% then he would be getting the $30,000 and paying the provider 39,000 dollars in future credit card receipts.
The agent would get repaid the $9,000 by taking a part of the daily credit card volume the business charges. Say the percentage the lender takes is eight percent of daily credit card transactions and the merchant received $10,000 in credit card volume for the day. The merchant cash advance provider would take $800 (8% of the $10,000). This process would keep going until the provider received the full $39,000. This payment process changes with the cash flow of the business. The percentage will stay the same so if your business has a slow period, you will be paying less. This is a huge selling point for the advance product. Conventional bank loans have a set payment amount, which could be difficult to pay during slow periods. A merchant cash advance has the feature to follow a change in business cash flow.
A merchant cash advance is a valuable substitute to a business loan. Some may believe nine thousand dollars is a expensive sum to pay but the criteria a small business owner must meet for a conventional loan is becoming more and more tough to obtain. A business cash advance is a way of obtaining immediate and easy money to meet business working capital needs.
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