How a Merchant Cash Advance Works for Small Business

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A Merchant Cash Advance is a new alternative to a traditional loan for small business. Under this form of credit arrangement, cash providers offer working capital by anticipating expected future debit and credit card sales. This type of financing helps a business seek a loan and fund its working capital requirements without out of pocket interest payments.

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When Should A Business Choose Merchant Cash Advance?

A Merchant Cash Advance is appropriate for a business if

  1. A business accepts credit cards as a form of payment from its customers.
  2. The aim is to have flexibility regarding repayment rather than the liability to pay monthly minimums.
  3. The enterprise has irregular sales flow and repayments might fluctuate as well.

What Can Be Funded Through Merchant Cash Advances?

  1. The loan can help in raising money for the purchase of inventories.
  1. The cash can be used for advertising and marketing promotions.
  1. Such loans can boost cash flow of a business and can help in hiring new employees, renovations and expansion.

Merchant Cash Advances can be extended to those businesses who have been receiving payments from customers through credit cards for more than 60 days. Most of the lenders prefer to lend to those merchants who record a minimum of $5,000 credit card sales each month.

Key features of this type of advance:

  1. Easy to apply and simple collection process – Since the merchant cash advance is extended using simple criteria such as monthly credit card receipts, businesses do not have to go through a rigorous credit profile evaluation.
  1. No credit or collateral – A merchant does not have to present any collateral against the cash advance, unlike with traditional loans.
  1. High Approval Ratio – A business with positive cash flows and robust business performance does not have to worry about approval roadblocks as the advances are made almost instantly to stable businesses.
  1. Repayments linked to collections – Businesses have the flexibility to make payments in accordance with their sales performance, which means that payments can be lower during the sluggish business period and vice versa.
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