When small business owners need capital, they often do not qualify for conventional bank loans. Typical banks usually require business and sometimes personal assets to be put up as collateral. Just as often, they do not approve the amount of cash required. For these reasons, many enterprising small business owners are choosing merchant cash advances to meet their cash flow needs. Merchant cash advances offer a number of advantages including no-collateral loans, quick approval, repayment amounts based on actual sales, automatic payment processing, and much more.
With a merchant cash advance, the amount that a business owner can borrow is based on the actual sales of the business. The financial institution in effect purchases future sales from the business. No company or personal collateral is required. A sales track record will secure the advance.
Financial institutions offering merchant cash advances do not use the same criteria that traditional banks do when considering merchant accounts. The ability to repay is based on sales history and the percentage of sales made with credit/debit cards. Typical businesses that benefit from such advances are service industry and retail businesses, but others may qualify.
Repayment Based on Sales
One of the most attractive features that merchant cash advance providers offer to those who hold merchant accounts is the ability to pay back the loan based on actual sales. There is no set amount to be paid each month. Instead, an agreed-upon percentage of credit/debit card sales is deducted each day. During slow times, payments are small. When business is booming, repayment happens more quickly. It is this flexibility that draws many merchants to this type of financing, especially those who own seasonal businesses.
Automatic Payment Processing
Not only is repayment based on daily sales, but it is also automatic. A portion of the company’s daily credit/debit card receipts are automatically transferred to the loan provider. No calculating is required of the merchant, and payment is off the top so there are no surprises.
When a business owner can combine all of these benefits with the added flexibility of using the money for whatever reason the business demands, whether purchasing inventory, making renovations, meeting payroll, or any other purpose, the popularity of merchant cash advances makes sense.