Similar to loans, business cash advance transactions involve an application process and a payback period and fees are charged in addition to repayment of the advance amount. In order to qualify, your business needs to already accept credit cards. If it does, you’re one step closer to obtaining the cash you need. Merchant advances are much easier to obtain than traditional loans – some providers even boast that they approve over 90% of applicants.
Repayment to business cash advance merchants is transferred directly to them as a portion of your daily credit card sales. Many providers do however charge monthly minimum amounts where you’ll pay a certain amount even if your credit card sales cannot “cover” the agreed upon amount. If your sales drop below a certain level, you may also be responsible for penalty fees and other charges. You can negotiate this level with a vendor depending on your business. The repayment percentage is usually much higher and more expensive than a traditional loan, but if your business needs cash quick, a business cash advance is a good option.
When finding a provider, here are some of the items you want to be careful of and note ahead of time:
- Rates. A flexible rate does not mean it will go down and up. It means it will go up. Avoid any agreements with flexible rates making it difficult for your business to repay.
- Business Collateral. Providing online checking account information or assets as collateral are just not good ideas. Period. It’s like writing a blank check to the provider.
A merchant cash advance can be a beneficial source of alternative financing for businesses that need cash for any reason. Make sure you choose a reputable provider that works with your merchant services account provider. Good sites to visit when researching a provider are The Federal Trade Commission and The North American Merchant Advance Association.
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