Merchant Cash Advance – What It Entails For Your Business
A merchant cash advance basically allows a small business to borrow money against its future sales. A provider in this kind of cash advance will expect a share of the future earnings of the small company in exchange for a lump sum amount that the business will use in operations or the like.
Some of the small companies that usually avail of the merchant cash advance are restaurants, retail, and the usual service companies. This is probably because it is these kinds of companies that rake in sales in terms of credit card transactions.
The types of small businesses that usually avail of this kind of loan are those that are still new in the playing field or who are struggling to operate on low costs. They do not have stable incomes that are enough to help them qualify for regular bank loans either. With the merchant cash advance, they risk to pay much higher interest rates that can reach an annual percentage rate reaching 200 percent.
Although this kind of loan is a risk for the borrower due to high interest rates, it is the most practical solution for them to get the money for operating costs. This kind of loan has not regulations or laws attached to it yet, in terms of interest rates, in the United States because it is a relatively new concept that arose due to small company needs.
The concept of paying back the loan is simple: the payback period allows the lender to collect a percentage of the every day credit card sales up to a period of a year until the loan is paid off. This means that depending on the sales that the business makes, the lender will collect a percentage of that, which means that the amount often varies.
This is actually advantageous for the borrower because the loan payment amount will only be based on the cash flow that they have for the day. This means that they would not have to comply with an unmanageable fixed amount daily to remit back to the cash advance provider.
Regular loans that are given by banks usually have due dates for payment and set amounts that need to be paid monthly. This makes it different and less attractive to small businesses because with merchant cash advances there are not due dates involved and no fixed amounts to be paid back either.
Repayment terms for the cash advance are usually what attracts small business to this kind of loan. This allows the small business to operate reasonably within its existing resources and costs because the merchant cash advance only takes out a percentage that allows normal operations to still be possible.
Merchant cash advances may help your company to be efficient. By selecting on the right merchant loans today.
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