As a business owner, your goal is to make your company as successful as possible. You want it to grow and thrive, but to grow your company, you need money.
You’re not alone. In fact, more than 59 percent of business owners that applied for business loans did so to grow their company. Unfortunately, many of those business owners don’t qualify for a traditional business loan.
So, how can you get the money you need to bring your dreams into reality?
Merchant cash advances (MCAs) are a great alternative to traditional business loans. Here’s what you need to know to help you take advantage of this unique funding option.
What Is a Merchant Cash Advance?
A merchant cash advance is a way to get money to finance your company’s growth quickly. They’re not a traditional business loan, making them ideal for companies that don’t meet the requirements most banks and lenders set forth.
The advance allows you to borrow money against your future sales rather than borrowing a set sum from a dedicated lender. It’s best for businesses that rely heavily on credit and debit card transactions and have an established history of payments.
The merchant cash advance lender will look at your sales history to determine whether you qualify for the advance in the first place. If they approve your application, they’ll let you know how much money they’ll give you in exchange for a share of your future sales.
There Are Fees
All merchant cash advance companies charge fees for their services as well as what’s called a factoring rate on what you borrow. They’re similar to loan fees and interest that you’d have to pay with a traditional business loan.
The fees are a set amount that helps cover the costs of the advance and the services the company provides. The factoring rate is essentially the interest rate you pay on what you borrow.
Different companies charge different fees and factoring rates, so it’s best to take your time and compare options before you agree to an advance. The higher the fees and factoring rate are, the more the advance will cost you in the long-run.
How You’ll Pay Back What You Borrow
Your merchant cash advance is still technically a loan. You’ll have to repay what you borrow. However, the process is completely different.
With a standard business loan, you make weekly or monthly payments as outlined in your loan terms for as long as the loan term lasts. This makes it easy to budget each month as the payments never change.
According to the team behind RBR Global capital solutions, merchant cash advances get repaid on either a daily or weekly basis. It depends on the agreements you make with your lender.
The amount you pay will be a set percentage of your credit card sales plus the factoring rate and any fees associated with your agreement.
Though the constantly varying rate of repayment can make budgeting harder, it does mean you’ll be able to get through lean times more easily. You’ll pay less when you receive fewer credit card payments and more when you do.
Why Merchant Cash Advances Are a Good Financing Option
These advances are a great way for newer or less-established companies to get the money they need when they need it. The application process is much simpler and lenders won’t mind if your credit score is less than stellar. This means more business owners will be able to qualify for the advance.
Even better, merchant cash advance brokers won’t ask you to post additional collateral to secure the loan. Your future credit and debit card payments secure the advance on their own. For business owners who want to keep their personal finances separate from their business, MCAs are your best bet.
Keep in mind that you’ll want to take your time and compare your options before you make your decision. The last thing you want to do is choose an MCA provider that offers you unfair terms or charges you higher-than-average fees.
What to Look for in a Lender
When you’re applying for merchant cash advances, you’ll want to take your time and research the different companies and brokers. Read up on the companies’ reviews and make sure they have a good reputation.
If most of the reviews are negative or express the same concerns, keep looking. However, if the reviews are mostly positive and the company has a good reputation, it’s worth getting a quote.
Make sure to get quotes from different MCA companies. Compare the rates, fees, and the amount they’re willing to give you before you make your decision.
Remember, you don’t have to borrow the full amount from the advance company. Instead, borrow only what you need so you can reduce the amount of money you’ll owe to the company.
You Can Combine MCAs With Other Financing Options
One of the biggest benefits of applying for a merchant cash advance is that you’re able to use it in addition to other loan types. Since the MCA doesn’t work as a traditional loan, it won’t hurt your overall debt to income ratio. This means you’re free to apply for and take out traditional loans at the same time.
This will allow you to budget for bigger projects and grow your company more aggressively without relying solely on your personal savings.
Is an MCA Right for You?
Merchant cash advances are a great way to get the money you need quickly. However, they’re not the only option out there.
The best way to decide if an MCA is right for your growing company is to look at your overall loan worthiness. If you apply for a business loan and get approved, the loan will let you take advantage of lower fees and low-interest rates. However, if you can’t get a loan or aren’t approved for a large enough loan, MCAs can help fill in the gaps.
Ultimately, the best way to finance your company is the way you’re most comfortable with.
Looking for more information on how to finance your business the smart way? Check out our latest posts.