Every business needs capital to operate, but sometimes the need for cash is more urgent than expected. That is when a merchant cash advance can come in handy. But a merchant cash advance can be useful in other ways too.
What is a Merchant Cash Advance and How Does it Work?
A merchant cash advance, broadly speaking, is a financial loan against future sales. That includes the purchase of future credit card receivables in exchange for a lump-sum payment. Most often, a merchant cash advance is used by businesses that have a large and consistent volume of credit card sales including retail businesses, medical offices, and restaurants, for example.
A merchant seller agrees with a merchant cash advance company as the buyer to sell some future revenues to the buyer at a discount. The buyer charges a fixed fee against the borrowed amount and then provides a lump-sum payment to the seller. The borrowed amount is repaid to the funder who collects a percentage of sales through an automated clearing house (ACH) withdrawal method. The loans are typically repaid in 18 months or less.
Get a merchant cash advance with proof of identity, bank and credit card processing statements, and business tax returns.
How Can a Merchant Cash Advance be Used?
A merchant cash advance can be used to support cash flow needs, cover unexpected expenses, purchase inventory, hire new employees, and meet seasonal surges. It can also be used to purchase new equipment, open another location, or pay for additional marketing expenses.
Pros and Cons of a Merchant Cash Advance
Pros of a merchant cash advance include an application process that is quick and easy, rapid access to funds, flexible use of funds, and no collateral required. The cons include high loan costs compared to other sources of funds, and potential cash flow problems because future sales will be used to repay the loan.
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