In our personal and business lives we are constantly paying back. Loans for cars and education; payment plans for items on holiday layaway or your child's orthodontics; mortgages on property and loans for business expenses. We are familiar with paying back. How we pay back lending agreements can vary, however. Depending on your business needs, you can pay large lump sums over time or small amounts each day or week.
Either way, you're paying back, and like J.J. Watt of the Houston Texans says, "Success isn't owned. It's leased. And rent is due every day."
Merchant cash advance
The general term "cash advance" gets a bad rap, likely because cash advance is overshadowed by the more familiar "payday loan," a quick personal loan that's intended to cover personal financial emergencies until an individual's next payday. They are short-term, typically paid back within 14 days, with a fee anywhere from $2-$4 per $10 borrowed. They are not the same as a merchant or business cash advance.
Merchant Cash Advance, also called a credit card split, is an advance that's repaid through a fixed percentage of your credit card sales each day. Essentially, you get a lump sum of cash in exchange for future sales.
Unlike other types of loans, the payback method allows for flexibility:
- smaller payments during slower business months or an unpredictable change in sales
- no set due date or fixed schedule
- smaller daily payments have less impact on your overall cash flow
- automatic deduction saves you from missing a payment or writing checks
Also appealing is the speed at which a small business can have money in a business account. A healthy cash flow is of more importance when applying for a merchant cash advance than your credit score, and that's one of the reasons access to funding through a merchant cash advance is quick. The application process is short and sweet.
Fees and requirements
Fees associated with merchant cash advances vary from lender to lender, but are not tied to an APR like a bank loan, rather a factor rate that is determined through the underwriter's business risk score. Most often remittance falls somewhere between nine and 30 percent of a batch of credit card sales. Requirements typically center around a minimum number of months of credit card sales.
Get to know the lingo before applying for any loan--whether a merchant cash advance or traditional bank loan. Ask questions, present accurate information in your application, and seriously consider your ability to pay the obligation before entering into a contract.
When your pros outweigh your cons for accessing capital quickly, without collateral, and taking advantage of a flexible, daily repayment schedule, a merchant cash advance might be the lease on success that your small business needs.
Have questions about merchant cash advance options? Contact BizLender, a leading provider of merchant cash advance and alternative small business lending options. Give us a call at 855-404-3070 or visit us online today.