A merchant cash advance, also known as a business cash advance, is a type of financing that businesses can use to obtain working capital. This type of advance is different from a traditional loan in that the repayment terms are based on the business's future sales rather than on its credit history or assets.
Merchant cash advances work by providing a certain percentage of a business's future credit card sales. This percentage is usually around 15-20%. Repayment is made in small, fixed installments over a period of time that is typically between 6 and 12 months.
Merchant cash advances can be a great way for businesses to get the working capital they need in a short amount of time. They are also a good option for businesses that have been turned down for a loan or for those that don't want to go through the hassle of getting a loan.
The main downside to a merchant cash advance is that the interest rates can be high. It's important to compare different offers from different lenders in order to find the best rate.
What are the Benefits of Merchant Cash Advance?
There are a few benefits that businesses can enjoy when they get a merchant cash advance:
- Quick access to capital: A merchant cash advance can provide businesses with the working capital they need in a short amount of time. This can be helpful for businesses that need to make quick purchases or that need to cover unexpected expenses.
- No credit check required: Unlike a traditional loan, a merchant cash advance does not require a business to have a good credit history. This can be helpful for businesses that have had trouble getting a loan from a traditional lender.
- Flexible repayment terms: The repayment terms for a merchant cash advance are based on the business's future sales rather than on its credit history or assets. This can be helpful for businesses that are unsure of how much money they will make in the future.
What are the Disadvantages of Merchant Cash Advance?
There are a few disadvantages that businesses should be aware of when considering a merchant cash advance:
High interest rates: The interest rates on a merchant cash advance can be high. It's important to compare different offers from different lenders in order to find the best rate.
Short repayment terms: The repayment terms for a merchant cash advance are typically between 6 and 12 months. This can be a problem for businesses that need more time to repay the advance.
Conclusion:
As you can see, a merchant cash advance can be a great option for businesses that need working capital quickly. However, it's important to be aware of the high interest rates and the short repayment terms. By comparing different offers from different lenders, businesses can find the best rate for them.