Home » Blog » merchant-cash-advances
Need Funds Immediately? Try Merchant Cash AdvancesSeptember 26, 2016
It may happen that the cash flowing in through the sales of your organization is insufficient to meet operational expenses. This can be worrying, especially if the business needs funds quickly and urgently. So what can you do?
Many organizations faced with this predicament turn to merchant cash advances to get funds instantly. This means of financing involves borrowing cash from an advance company against future credit card sales. Through merchant cash advances, a business can get funding within a short period of time (sometimes as few as 2 days), with little paperwork involved.
How a Merchant Cash Advance Works
In getting a merchant cash advance, a company turns tomorrow's credit card sales into today's cash flow in exchange for a predetermined premium. The organization enters into an agreement with the lender which allows the advance company to collect a fixed percentage of the business's daily credit card sales. For example, if the lender has advanced $20,000 for a premium of $7,000, it may decide to deduct 40 cents for every dollar of credit sales that the company makes until it recovers the entire amount advanced, along with the premium.
The good part about merchant cash advances is that the lender gets paid only when the business gets paid. If, during a particular month, sales are slow, the payment to the lender is lower, since it's dependent on sales. There is no due date for the advance to be paid off – the debt is recovered by the lender when the company clocks enough sales to cover the advance along with the premium. No collateral is required (other than the credit card receivables, of course) for securing the advance, and the amount loaned is usually determined on the basis of cash flow, without taking credit scores into consideration. There are no hidden fees or restrictions – the agreement is very open and the cash can be used for any purpose. Generally, the only prerequisite for a business to qualify for a cash advance is that all of its transactions are conducted through credit cards, and the company has been active for the last six months.
One of the limitations of merchant cash advances is that the borrowing company is often required to switch their credit card processing as well as their point-of-sales (POS) system. This is because many advance companies have their own proprietary hardware and software built into their POS system.
Another drawback is that cash advance companies usually demand very high premiums. Critics have accused lenders in this industry of skirting usury laws that protect businesses from being charged unreasonably high rates of interest. Creditors use various methods to determine the amount that the borrower will have to repay. One method involves calculating the cash advance owed plus a smaller percentage of between 60% and 80% APR of the amount financed. Other companies multiply the amount advanced by a constant factor rate to determine the amount to be paid back. This constant factor rate may range anywhere from 1.14 to 1.48.
Alternative Source of Business Funding
As can be seen, the interest charged by cash advance companies can be exorbitant; hence they are generally used for borrowing small amounts of funds on a short-term basis. As a business owner, you may not want to pay such high charges, or you may need a larger amount of funds for a longer period of time. In that case, you may find credit cards to be a better option. Through this channel, most businesses can get $10,000 - $20,000 and more at relatively low interest. However, if your requirement is more within the range of $50,000 - $250,000, our team at Fund&Grow has a great solution for you! We can help you get this amount at 0% interest, easily and quickly, guaranteed! All you need to do is call us at (800) 996-0270, and we'll take care of the rest.