Using Merchant Cash Advances for Working Capital

During the process of growth, small businesses often run into a need for working capital. Maybe the business owners hope to purchase more inventory or do some remodeling. They may need to hire new employees or to upgrade equipment. Unfortunately, obtaining a loan through traditional sources, such as the neighborhood bank, can be difficult. About fifty percent of the small business owners who seek those loans are denied. Merchant cash advances can be the solution for those business owners. These cash advances can be used to provide capital that small businesses need to remain competitive.

One: How Will the Advance Be Used?

The first step in using this resource is to determine how the merchant cash advances would be used. These financing options can be used for fairly large lump sums, generally equaling between 100% and 250% of the established monthly credit card receipts. The percentage of the credit card receipts is often based on how much the small business is able to afford. The provider of the cash advance has an interest in making sure that the small business stays solvent because this is the only way that the advance provider will continue to get payments.

Two: Does the Small Business Qualify?

The second step is to determine whether or not the small business qualifies for merchant cash advances. In this day and age where credit card sales make up a substantial amount of business dealings, there’s a good chance that most small businesses do qualify. For this type of loan to be beneficial, the business will need to handle a large amount of credit card sales. The cash advance provider will take a percentage of those credit card sales until the amount of the advance and a premium has been reached.

Three: Weigh the Pros and Cons

When using merchant cash advances to boost the flow of capital, small businesses can expect several benefits. This include a quick approval rate and no fixed maturity date. This gives the small business some flexibility in the payment of the agreed-upon percentage. When credit card receipts are small during lean months, the amount of the payment to the cash advance provider decreases as well.

How Do the Drawbacks Compare to the Benefits?

There are a couple of drawbacks to this type of financing option. The first is that they tend to be relatively expensive. However, when small businesses cannot get loans from their bank, this option could be the best of the alternatives. The second drawback is that this option is only available to those businesses that accept credit cards and do a large bulk of their business this way. When weighing the benefits and the drawbacks, many small business owners find that they would come out ahe