A merchant capital advance is a great option for getting quick access to money, for some businesses. A business owner may encounter an unexpected problem or an unexpected opportunity and not have the funds on hand to respond. Credit cards and small business loans may not be viable options.
Even so, all businesses can benefit from immediate access to money, so securing a merchant advance can be a legitimate business strategy. Businesses that lack access to high credit limits on cards, bank loans or factoring can still use advances against credit card receipts.
In return for a share of future receipts, the business owner gets access to cash right away. The merchant advance lender gets a share of credit card receipts until the advance and a premium are paid off. Other payment options may exist.
Merchant Capital Advance Strategy:
A merchant capital advance might be helpful in two situations, to exploit an opportunity and to solve an unexpected problem. These are the same situations where an advance can be a viable alternative to credit card use, a loan, or factoring.
Conventional lenders won’t always extend credit for small, one-time expenses. A credit card might not be a good option, depending on the terms of the card and the amount of money needed. A credit line can be extended, but should it be?
Some opportunities are easy to anticipate, such as the beginning of the summer travel season. Other opportunities are unexpected and unplanned for. A quick infusion of capital from a merchant capital advance can be a good option for dealing with unexpected opportunities or problems.
Unexpected costs are a fact of life in the business world. Coming up with short-term cash to handle a problem might present the same challenges that an unexpected opportunity presents. Does the broken piece of equipment need to be fixed now, or can it wait? Often, money or credit needs to be found right away.
An advance should only be sought from a firm licensed to do business in that state or province. A licensed cash advance firm is likely to be reliable and professional. As with any business service, due diligence on the part of the borrower is important.
Know how much money is coming in, and when. The merchant advance company would expect to see proof of future income, such as $25.000 in average monthly credit card purchases.
Verify that average credit card receipts can cover the advance and premium in a reasonable amount of time. A merchant advance is not a loan, but the premium for a cash advance can reach an effective interest rate of 200% per year. Know what the real cost of the advance will be.
Use Those Advances with Care:
Small and medium business owners have many options for dealing with short-term capital needs. Not all of those options are available to all. A merchant capital advance, if used responsibly, is a useful tool for businesses looking to exploit unexpected opportunities or solve problems with cash flow, broken equipment and more.