Funding is often the number one obstacle facing small businesses. The best products, ideas, and business plans in the world are not much good without sufficient capital funding. While “traditional” funding methods are limited to bank loans, venture capitalists, angel investors, or seeking grants, the modern business landscape has opened up with a large number of alternatives for small businesses.
Amongst these many methods for raising business capital is a merchant cash advance. This type of advance is a fast and convenient method of raising the capital you need from a merchant service provider you trust. With that in mind, let’s explore exactly how merchant cash advances work.
Merchant Cash Advances for Small to Medium-Sized Businesses
Merchant cash advances are not loans. While cash advances are typically a type of short-term loan, merchant cash advances are instead cash advances which are held against future sales. You might be saying, “that sounds a heck of a lot like a loan”. That’s an understandable thought.
The primary difference is that your small business is not liable to pay back the money independently, and only through your business’s credit card sales. This is one of the main reasons why it can be difficult to successfully apply for a merchant cash advance (more on this below). It requires a great deal of trust from both parties to successfully enact a merchant cash advance.
How Cash Advances are Paid Back
So how exactly are these cash advances paid back? As a business owner, you can run your business as if nothing has changed. When a sale is made, a small percentage of that sale will go to your merchant cash advance provider. This process is relatively seamless on the part of the business owner after working with a merchant service professional to get your system set up.
To state the obvious, working with your merchant services provider who also handles your credit card processing to get a cash advance makes this entire exchange easier. The stronger your relationship with your merchant service organization, the greater the likelihood of your approval for a merchant cash advance and the more quickly you can get started!
Will I Qualify for a Merchant Cash Advance?
The bad news is that most small businesses will not qualify for a traditional small business loan. It is estimated that 92% of business owners’ requests for loans are rejected right off the bat. The most common reasons for loan refusals include insufficient collateral, not enough time doing business, and insufficient credit scores.
The good news is that the requirements for a merchant cash advance are more forgiving, albeit still important. Your business is likely to qualify for a merchant cash advance if you have been open for business for a minimum of one (1) year, you do $5,000 or more in Visa & MasterCard sales monthly, and have a decent credit score.
This really isn’t so bad compared to the U.S. Small Business Administration’s requirements for small business loans. Whether you are going through a government institution or straight to a bank, it is extremely likely that the requirements will be much stricter than a short term merchant cash advance.
The Bottom Line of Borrowing Through a Merchant Cash Advance
So far we have made merchant cash advances sound like the greatest thing since sliced bread. Yet they are not the solution to every problem. For example, long term, large dollar volume capital needs are still best served by other methods. You may want to consider a merchant cash advance if any of the following is true:
Your business has a long-standing and healthy relationship with a merchant services provider that you can trust.
A business opportunity has arisen to make a one-shot investment such as buying a property, upgrading your workspace, and so forth.
Your business needs short term capital and factors like poor credit or low monthly revenue are preventing you from a traditional bank loan.
You need funding fast. Even a successful loan will likely take far longer to complete than a successful merchant cash advance.
You lack collateral. Merchant cash advances are not secured by collateral like traditional loans. This means that you can sleep at night knowing that your home will not be repossessed if you are unable to pay back what you owe.
Your business revenue fluctuates dramatically. Many merchant cash advance agreements will allow for you to pay back funds in greater amounts when business is good and in lesser amounts when business is slow.
True Merchant Offers Transparent Pricing and Terms for Merchant Cash Advances
Merchant cash advance is an extremely convenient way to obtain the capital you need and that usually comes with a high price tag. Not with True Merchant. Speak with one of our representatives for a transparent explanation of how a merchant cash advance could work for your business. We will walk you through the application process, and even get you set up with a repayment program that works for you. At the end of the day, our job is to serve the needs of our clients. We are proud to offer funding which can help your business grow!