The key is choosing the right lender and sourcing the best working capital options for you. We write this article to explain merchant cash advances and how they function. This article is designed to take the mystery out of the product and show merchants an alternative way to get funded
Mechant Cash Advances: Convenient, Fast and Effective.
Merchant Cash Advances are a viable alternative to many small businesses because they provide needed capital that may not be available through traditional bank channels. Cash Advances are not a loan because the business sells a proportion of its future receivables in exchange for upfront cash.
How does it work?
In a typical cash advance scenario, a merchant receives a lump-sum payment of one to four times their average monthly card volume. The lender and merchant agree on a percentage of daily card sales or a fixed daily payment to be deducted from the business account to repay the advance.
What the lender looks for is a good record with the landlord, no serious defaults or judgements and definitely no bankruptcies. A low credit score of 400 is considered with an acceptable explanation of the default if paid.
Minimum documentation is required and no security or collateral is sought. Main documents are the business banking statements and copy of lease or mortgage statements of premises if owned by the business.
A direct debit is setup from a pass through account to capture daily sales and an agreed percentage is deducted from this account as payback for the advance. The balance is then transferred to the business account. The benefit here is cash flow management and less worry about repayments being made on time.
So what's the cost of a Cash Advance?
While costs to merchants are certainly higher than traditional loans, the pricing of these loans takes into account that no security or collateral is taken to guarantee the loan advance. Thus the lender takes all the risk in the event a merchant goes out of business and the pricing takes this into account.
Wrap up
Clealry, a merchant cash advance can provide the vital funding small businesses need to grow and thrive.
Boost your business. Get you FREE quote from Accrutus Capital, or call direct 02 9006 1327.
