Benefits Of Merchant Cash Advances
Statistics have shown that the majority of failed small businesses lack underfunding and adequate capital investment. As a small business owner, it can be difficult to find the right funding source to meet the investment levels that will ensure your business has a fair chance for success in the market. A merchant cash advance is an alternative cash source that may be an ideal way for your business to get the funding it needs without the added risk of a conventional loan.
Is a Merchant Cash Advance the Same as a Loan?
When a small business loan is contracted by a business owner, the principle amount is paid back through payments that include interest. The interest rates on small business loans tend to be less reasonable for new businesses simply because they lack the merchant credit history that is required to garner a low interest rate. Merchant cash advances are different from loans because they are based on a flat fee rather than interest. The money is paid back automatically without further action by the merchant.
How Does a Merchant Cash Advance Work?
Any business that has accepted credit card sales for more than 60 days is typically eligible for a merchant cash advance. The provider in this case is known as a factoring company. When applying, the factoring company will agree to a lump-sum payment to the applicant business in the form of an agreed amount. The business owner is then free to invest the new capital into his immediate operation. The factoring company then retrieves the investment from credit card sales payments that are made to the merchant from credit card companies in lieu of that merchant until the full amount of the cash advance and the flat-rate fee have been retrieved.
What Are the Benefits to a Merchant Cash Advance?
The most significant benefit is that the flat-rate fee associated with the transaction is highly competitive with interest rates because it does not continually accrue over the duration of the outstanding debt. Another benefit is that the risk of repayment default is lower due to the fact that the initial principle is retrieved according to the natural influx of credit card receipts. The principle is not based on a strict, predetermined timetable.
The merchant cash advance is intended to stimulate an immediate cash flow investment that is then repaid at a prorated pace according to credit card sales. The majority of small businesses that need extra funds can benefit greatly from merchant cash advances.
Fred often writes articles on how small businesses can improve their cash flow problems. He believes that a merchant cash advance company can be an excellent solution for many companies in this situation.
