Have you ever considered taking Merchant cash advance for working capital? Whether your answer is yes or not, we suggest that you should at least be aware of what this is all about. Find out all about this type of loan in this article. Read more to get a clear idea.
Entrepreneurs are on the rise these days because nothing else gives you the avenues and the profits that a business does. If you are someone who wants to start a business of your own, or one who already owns a business, then you will know how exciting running a business can be. But it is not all hunky dory in this field.
There will be times when you will need to take serious risks, take precautionary measures, be up to date with all that is happening in your field of business, etc. In short, running a business is as difficult as it is exciting, and you need a lot of resources for that.
What is the meaning of Merchant cash advance for working capital?
Merchant cash advance for working capital is paid back in small amounts on a daily basis, and the amount can vary from one day to the other.
This kind of capital is paid back in the form of a percentage of every credit card transaction that you make. The process will continue till the time the decided amount is paid back. This kind of loan is an advance loan against future flow of cash.
How does this form of funding work?
Merchant advances for working capital is also known by the term business cash advance. This name is given because of the way in which this loan functions. If your business is doing great and the sales are high, then you will receive the payment quickly. If the sales of your company are going low, then automatically the payment too will decrease.
Where can one utilize the working capital?
In a business, you will require financial assistance in a lot of areas. Yes a merchant cash advance can help you with the purchasing of your inventory, buying infrastructure, providing quick capital for short term needs, marketing expenses, etc.
Advantages of the working capital
The single greatest advantage of these borrowing options that captures the attention of businessmen is the flexible nature of this loan. When you compare this with the same old bank loans, then you will see that merchant cash advance loans give you a lot of free space to adjust your payments.
You do not need to provide a long and clean credit history when you apply for merchant cash advance loan. You just need to have steady and consistent sales in your company, in order to get merchant cash advance loan.
Disadvantages of merchant advances for working capital
For people who do not know how to handle the funding options well, this can prove to be hazardous for their business. Here are some disadvantages that merchant cash advance might have:
1. They are very different from a bank loan and that is why it does not fall under the same state laws that other loans do. If you go for this kind of a loan, then you might become a victim of a debt that is ever increasing, with hidden terms and conditions. This will prove to be harmful in the long term for your business because of the lack of protection you have.
2. Getting merchant cash advance depends entirely of your debit and credit card transactions. So if your business has other cash transactions or wire transfers, and only a limited percentage of the total transactions are done through card, then this loan will be useless for you. You will get a very limited amount of loan in this case, according to the amount that you transact on your cards.
3. They are to be repaid, depending on your sales on a day to day basis. This necessitates that the amount does not stay the same every day. Therefore, you can never actually know the time by which your loan will be paid back in its entirety.
So, you cannot plan your future finances as well. Some merchant cash lenders will also prescribe their own credit card processor, which means that you will have to make changes in your existing set up.
How to get your advance approved?
Whenever you apply for any kind of loan, you will need to get a few documents ready and you will also have to satisfy the lender. To increase your chances of getting your loan approved, you should be ready to answer a few questions that you will be asked when you go to seek merchant cash advance.
Know if seasonality brings any chances in the growth of your sales. Knowing your statistics right will make the lender have more faith in you. The lender will also ask you about the percentage of the sales of your credit card. Being ready with an answer will definitely put you on a higher scale in front of the lender.
There are a couple of things that you should be ready with when you apply for working capital. Here is a short list:
• A VOID check from your business account
• A valid government ID proof
• Your business bank account’s last three statements
• Credit Card’s last three statements
The requirements are pretty simple and once you have them ready, you can easily get your working capital approved.
What are the specific requirements for working capital?
A lot of merchant services just need your business to have a standing for at least one year and make profits worth $5000 per month.
However, there are other various options as well. There are two main types of working capital funding options: starter advance and the Premium advance.
With the Starter advance you can be eligible if you have just been in business for only around 3 months. The average credit card sales in a month need to be calculated and you might get half of that total amount in the form of funding. As your business develops, you can again apply for a better funding.
The Premium merchant cash advance is for businessmen who have been in business for quite a long time. If your business has been going strong for more than three years then this is the best deal for you. Not only will you get better loaning terms, but you will also be given lower costs.
How to find the best lender for funding?
Look for a lender that will know what your business stands for and what avenues you have. There are a lot of options when it comes to getting merchant cash advance for yourself but you should beware of lenders who just want to make money out of you.
We suggest that you do your research well, talk to a few lenders, make a comparison among all of them, and then finally decide on the one you want to settle for.
Is my business fit for merchant advance?
Technically you can take merchant cash advance for working capital in any industry that you want. But, if you want to go by what the experts have to say, then there are a few industries that rely on this type of loan. Here are some examples of industries:
Talking about volatility in sales, restaurants are the type of business that occurs to our mind at the outset. You cannot predict when you will have more customers. Having some extra hands handy is much needed.
If you want your restaurant to get popular then you will also have to invest in marketing or even creating a food truck. So these will help you in this regard.
2. Shops that repair
Repair shops need a lot of expensive equipment which are not always easily available and you often need to pre-order them. These will help you to buy these types of expensive equipment so that you do not go out of business.
Most of the salons do all their transactions through credit cards, which automatically increases their chance of getting a merchant loan. In addition to this, if you own a salon, you will need to have all the latest types of equipment that are used in high end salons. In such cases, these options will be of help.
Retailers witness a lot of fluctuation in sales due to a lack of some particular products. Having merchant cash advance loan will help you restock your retail store so that it stays in working condition. Even when your sales increase, you can hire more workers to assist you, with the help of the merchant cash advance loan.