Business owners often find themselves in hot pursuit of working capital for their organization. While there are many ways to go about this, one option that does not get covered quite as often are merchant cash advances. They can be a beneficial type of additional capital to pursue, especially if your business makes the majority of its sales through credit cards. With this form of working capital, a lender will essentially pay you a lump sum upfront. In return, the lender receives a portion of each sales transaction made using a credit or debit card directly from the credit processor until the amount is paid back.
As you can probably gather, merchant cash advances are different from a small business loan, and probably less familiar to you as well. Like other popular business financing options, merchant cash advances mean having extra funds on hand that can allow you to improve upon various aspects of your business. Here are the answers to a few questions that can help you determine whether a merchant cash advance is the right fit for your business.
- What is a merchant cash advance? A merchant cash advance is a form of working capital, in which a fixed percentage of your business’s sales will be taken out of your bank account in order to pay back your advance.
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- What industries do they benefit? Businesses that make the majority of their sales from credit cards will do best with a merchant cash advance. These industries include, but are not limited to, restaurants, retail stores, and e-commerce businesses.
If a business makes little to none of their sales from credit cards, then they may be better off applying for a small business loan or another type of financing. For example, a construction company may be better off with a small business loan, since they usually receive big payments all at once, not via credit card.
- How are they different from other working capital options? Merchant cash advances are not the same as small business loans, believe it or not! For example, a small business loan will have a predetermined repayment schedule and amount, while merchant cash advance payments are never the same. As we previously mentioned, they also are suitable for different industries.
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- How does the payback schedule work? Essentially, merchant cash advance payments are never the same. Due to the nature of this advance, the repayment is a percentage of your future sales and will fluctuate with the pace of your business’s income. Depending on the lender you’re working with, you may be able to get a merchant cash advance with either daily or weekly debits.
This also depends on your business’s revenue amount and frequency; some businesses may have trouble with making daily payments while keeping their business in good financial standing. One reason this benefits some businesses is if your sales are slow, you won’t have to worry about meeting a certain payback amount. Since a merchant cash advance payment is a percentage of that time period’s credit card sales, you’ll be paying a smaller amount at that time.
Merchant cash advances are a unique working capital product that can be helpful for many different businesses. Receiving a merchant cash advance will allow you to make improvements to your business, and the payment schedule will go with the flow of your business’s revenue at that time. If you’re interested in pursuing a merchant cash advance to grow your small business, apply here!
Now that you’re educated on the ins and outs of merchant cash advances, let us know in the comment section below if applying for one would benefit your growing business!