What small business proprietors must know about merchant cash advances

A merchant cash advance is a type of exchange carried out by financing companies to fund small businesses in return for an enumerated percentage of credit card or debit card sales along with a fee. It is tailormade for small businesses, especially for vendors and sole proprietors dealing in the retail market. Merchant cash advances are easy to attain for businesses that require a certain amount without having to keep a collateral. Companies dealing in this type of an advance aren’t very finicky about good credit scores, thereby making it open for all.

The minimum amount that may be received from merchant cash advances is $2,500, whereas the maximum is $250K. There is a merchant account set by the financial company through which the borrower repays the amount, usually daily. A factor fee of 1.14% to 1.18% is charged from the borrower. The funding is instant, generally taking up to two business days to transact.

Perks of merchant cash advances
The few primary advantages of Merchant cash advances are as follows:

  • As soon as the cash advance gets approved, the concerned individual gets access to the funds, which is usually within two working days.
  • The process is very simple and easy to comprehend for everyone.
  • Even businesses with bad credits get a chance to make things work for themselves.

Disadvantages of merchant cash advances
The main drawbacks of this kind of advances are as follows:

  • The fees applicable are higher when compared to traditional loans.
  • The flexibility to switch merchant service providers is very low as they are generally very strict and rigid about it.
  • The daily deductions through credit card receipts (which need to be done as part of the deal) has a tremendous impact on the cash flow in the business.

Businesses eligible for merchant cash advances
Considering how merchant cash advance is applicable for small businesses with bad credits too, it is open for all. However, restauranteurs and retail store owners specifically have an upper hand here as their transactions occur through both, cash and credit cards.

Alternatives to a merchant cash advance
A merchant cash advance can’t be called the ideal solution to build a business credit as it is not a loan. The repayment done to the financial companies don’t intimate the business credit bureaus, meaning repayment of a merchant cash advance won’t improve a business credit standing. Therefore, traditional loans, online short-term loans, or even installment loans are preferred over a merchant cash advance.