What Is A Merchant Cash Advance?
This is a relatively new addition to the business loan world and there are really only a handful of companies providing this service.
it is an option to consider if you have been declined by other lenders whose qualification criteria will probably be a lot tougher.
Companies best suited for this type of loan might have limited assets but high credit card turnover.
The merchant cash provider will be inclined to approve the loan if you can demonstrate high volumes through your card terminals and have been in business for a period of time. Each lender makes its own judgement on that.
You will pay more than for a standard loan, but the upside is quick approval and flexibility.
How does it work?
The lender provides funds to your business in exchange for a percentage of your business income during the term of the loan.
Payments are often automatically deducted from your credit card sales each day. The amount deducted will depend on the size of the loan and your takings.
There is no interest rate as such. Lenders will charge a “factor fee”. So, if you borrow $10,000 with a factor fee of 1.25 for 12 months you will repay $12,500 in daily instalments.
That gives it an annual interest rate of around 25%, so you have to work out if your return from investing this money in your business is worth the cost.
It is for many business owners , otherwise this form of finance would not be so popular.