Merchant Cash Advance overview
What is a merchant cash advance?
A merchant cash advance is a quick, easy way to get a cash injection for you business with no need for collateral or a great credit score.
A merchant cash advance is a unique type of loan facility in that the amount that is loaned (or ‘advanced’) is calculated and approved based on the turnover and sales of your business. Instead of having regularly scheduled repayments like other business loan products, merchant cash advances are paid off daily as a share of your sales.
Merchant Cash Advances are characterised by speedy funding, lower amounts of documentation & no need for security. All you need to show is that your cash flows are steady and regular.
Benefits of a merchant cash advances
Merchant cash advances often have a far easier approval process when compared to other business loan products. Providers have lower documentation requirements and often can complete an agreement without needing copies of financial statements, tax statements or other business documents. Less weight is also placed on personal credit scores as given the daily repayment structure of the cash advance, merchant cash advance lenders are more concerned about the cash flows of the business rather than your own personal credit history.
Drawback of merchant cash advances
Merchant cash advances tend to be more expensive than regular loans therefore make sure you know the annual percentage rate (APR) so that you can compare to other loan products. Despite getting an advance of cash, given the lender takes a percentage of your daily sales it will reduce your cash flow relative to if you didn’t have the facility. Being dependent on future sales you should double check that your cash flow will be enough to cover the costs and leave you with enough cash to effectively run your business.
What is a merchant cash advance factor rate?
Instead of providing an interest rate a merchant cash advance provider will give you a factor rate, often in the range of 1.1 to 1.5. A factor rate works differently to an interest rate as you you multiply the factor rate by your loan amount to figure out the total amount you’ll owe.
Applying for a merchant cash advance
Applying for a merchant cash advance is a fairly different process to other business loan products. Lenders do not require as much business information and are less concerned with your personal credit score given the facility is effectively backed by your sales.
What lenders are concerned about is whether your business has predictable, regular steady cash inflow so that they are able to be paid back a percentage of the sales volume for the loan drawn out.
What is a merchant cash advance best used for?
Merchant cash advances are one of the fastest ways to secure funding for your business and are suitable for a wide range of business purposes. If you have had any adverse events on your personal credit report but you’re business has steady sales then a merchant cash advance could be a fantastic product for your business.