One of many merchant services, cash advances serves a purpose for many small and medium businesses. Emergencies, unexpected opportunities and lack of other resources can all lead a business owner to seek an advance.
Merchant Services Cash Advance:
Cash advances are a valuable resource for some businesses in some circumstances. A cash advance is a way to access funds that the business cannot otherwise get. Many small and medium businesses lack the solid credit rating, the collateral, or the track record to get bank loans. Some businesses don’t have many large invoices outstanding, so there is no revenue to sell.
However, almost all businesses have receipts from credit cards, debit cards, electronic checks or other electronic payments. Those receipts are a resource that can be used to generate emergency cash, or to move quickly in other circumstances.
Exploiting Opportunities with Cash Advances:
Sometimes business owners need quick access to money but they can’t meet the loan requirements of banks. In other cases, the business just can’t get through the whole loan process quickly enough. A cash advance could be available in less than two weeks, often less than one.
An opportunity to get new inventory or a hot product or to exploit some marketing opportunity might arise. The owner might be wise to sell some of the company’s credit card receipts to exploit that opportunity.
Natural disasters and economic downturns aren’t exactly opportunities in the usual sense. But, a cash advance firm can help businesses ride out the loss of revenue that such events often cause. Emergencies like these are opportunities for MCA vendors and brokers though.
Managing Cash Advance Risks:
Business owners need to exercise caution when using merchant services like cash advances. The full terms and costs of a loan might not be presented honestly and clearly. While this is a rare problem, it sometimes happens that the borrowing cost shoots up as administrative fees and brokering commissions get tacked on.
Cash advances cost money, not in interest but in fees. The real risk is that the benefit from getting the advance might be erased by the premium that an MCA company charges. For example, a $200,000 advance might cost $50,000 over the course of a year or so. In effect, the customer sells $250,000 of credit card receipts for $200,000.
One advantage of a cash advance is the flexible payment system. The MCA vendor takes an agreed-on percentage of daily credit card receipts. If receipts plunge, the dollar amount goes down. This is not true for a loan, where a slow period could lead a business into real financial distress. If a business got the same amount of money from a cash advance, the vendor would simply need more time to recover the advance and their premium.
Use Cash Advances as a Business Tool:
An advance against future income carries costs and offers potential benefits. Emergency funding is often not available from a bank. An unexpected opportunity might pass without quick access to some future credit card receipts. Merchant financial services like cash advances against credit and debit card receipts.