What Is a Merchant Cash Advance and How Much Does It Cost?
When your business is struggling to keep the lights on month after month, you may shake your head and wonder how it’s possible. You have plenty of customers and business seems steady, but at the end of a month, you’re struggling. Maybe you had a rough month earlier in the year that required you to replace equipment, or perhaps you took a loss on inventory.
Regardless, when you are in a jam and need access to cash fast, a merchant cash advance might be the best solution.
What Is a Merchant Cash Advance?
You have probably heard of a cash advance when it comes to a personal loan against a future paycheck or payment. A merchant cash advance works in the same way except it is an automatic advance against future credit card sales. Why? Credit card sales are easier to average out, so any company you apply to will be able to get a clear picture of what kind of sales you are expecting in the coming months. They then set up automatic transfers out of those credit card transactions into their account. The terms of the repayment schedule are negotiated and will be something you and the company agree is best.
How Long Does the Application and Funding Process Take?
When applying for standard lending like a business loan or line of credit, you will most likely not get access to the funds for some time. The application and underwriting process can take months. If you are in a bind and need cash quickly, a cash advance may solve your problems. The application process is relatively quick and easy, and once approved, you will often have the money deposited into your account within two business days.
How Much Does a Cash Advance Cost?
Like any other financing option, a cash advance is going to cost you something. Most companies who deal in this type of lending use a factor system to calculate the amount of your fee. A typical rate is 1.14 up to 1.48. To figure out how much that rate translates to, multiply the amount borrowed by the factor rate. In terms of percentages, these loans typically start at 15% interest but increase exponentially.
Will a merchant cash advance work for your needs? That is a decision only you, the business owner, can make. When you require cash quickly, it is definitely an option worth considering.
