Many merchant cash advance companies offer short-term loans to small and medium businesses across a wide range of industries. The firms offer a viable financing option for some businesses under some circumstances. As with any service, there are risks and benefits in dealing with a cash advance company.
Merchant Cash Advance Companies Fill a Niche:
All businesses have access to immediate cash and credit, but this isn’t always enough. A company may have bad credit, no credit or no assets that could be used to secure a loan. Banks and credit unions only loan money to businesses with excellent credit or substantial assets to use as collateral. A business with few invoices outstanding might not be able to use factoring.
Any business with some regular revenue, especially significant credit card receipts, can apply for a cash advance. The money can be available in a few days, almost certainly faster than a conventional loan, and with lower qualifying requirements than a bank loan or line of credit.
No business owner wants to encounter a financial emergency, but emergencies happen. A merchant cash advance company could provide a small business with limited credit and collateral with the money to repair storm damage or recover from a fire.
The business reasons for using a merchant cash advance as a financial tool have been covered. But, why is there a merchant cash advance industry? Simply because many companies need short-term loans and cannot be served by banks. A business that needs money for 3-15 months might not be able to get a bank loan.
Managing the Risks:
Merchant cash advance companies are like any other service provider in many ways. Make sure the company is regulated and licensed to serve that state. Most cash advance complaints involve unregulated online lenders, according to data from a 2014 Pew Research study of small loan providers.
Most any financial expert would advise business owners to read the contract. Make sure the terms of the contract and payment are clear. A representative of the lending company should be able to answer any questions.
Know the full cost of the money. The cash advance might carry an effective interest rate several times higher than a business credit card or a line of credit from the bank. If waiting on other sources of money is not an option, the cost of that cash advance may be acceptable.
Experts also recommend that prospective borrowers look for a partner who understands their business. Different merchant advance firms have expertise in serving select industries. The particular details of an industry’s business processes make it easier to work with a lender that understands the industry.
Integrate Cash Advances Into Strategy:
Most small businesses could make good use of a cash advance at some point during the year. Credit cards, factoring companies, and conventional financial institutions are not always viable options. Emergencies, bad credit, and low revenue all place restrictions on a business owner’s options. A merchant cash advance company may be able to provide the needed money at a reasonable cost.