Understanding the Popular Merchant Account Cash Advance

merchant account cash advance

The merchant cash advance industry is one that is not precisely understood by lots of people, even those in business circles. The reason for this is perhaps that not much information is available on the subject—which is likely-or that small business owners have not sought to understand merchant cash advance to harnessing its benefits. This could be as a result of the way in which small business owners quickly dismiss merchant cash advance on the grounds of its relatively higher cost. While it is true that merchant account cash advance is relatively more expensive than the traditional lending options such as commercial banks, it is fair to say that the issue of cost represents just a tiny fragment of the story of merchant cash advance. Skeptics and business folks alike seem not to realize why it is that merchant cash advance is rightly more somewhat more expensive than conventional bank loans. Before one can make a case for merchant cash advance, one has first to understand what factors they are which influence the cost of traditional lending options.

Unlike merchant account cash advance, a commercial bank loan attracts interest charges. The amount of interest that a loan draws depends upon some factors. One of the leading factors that influence the amount of interest a business has to pay is the risk involved. Risk, of course, is something that is subjective; however, the level of risk the lender feels it takes by lending to the business has a massive role in shaping the amount of interest that is paid. It is a fact that the higher the perceived risk, the higher the interest that will be charged—the reverse is also true. If one looks at merchant account cash advance transactions, it becomes clear that the risks taken by merchant cash advance providers exceed those taken by commercial banks and the reason for this is not far fetched.  From what we know about merchant cash advance, there is no requirement for collateral or personal guarantees which could have served as security for merchant cash advance providers. So since the risk borne by merchant lenders is maximal, it is simply a matter of sound business practice for a merchant account cash advance to attract a relatively higher cost. Once one is aware of this illuminating fact, one can begin to see merchant cash advance in a different, positive light.

What is the requirement for obtaining a merchant cash advance?

In as much as merchant cash advance is considered to be the ideal option for small businesses which have been unable to secure funding from other sources, perhaps as a result of not meeting up with the stringent demands often associated with borrowing from traditional sources, it has to be said that merchant funding is not meant for just about any business—because there are still requirements that have to be met, howbeit loose. One of the principal requirements for obtaining a merchant account cash advance is that the business must accept credit card payments. Apart from merely receiving credit card payments, the business must be generating a significant amount of revenue that would convince the merchant cash advance provider of its ability to pay. For most merchant vendors, monthly revenue of $5000 is sufficient to be considered for a merchant cash advance.  In practice, it is the amount of revenue the business generates that determines how much advance it is eligible for. In most cases, merchant cash advance providers offer a business up to four times of its revenue as a merchant account cash loan.

There are still other requirements for a merchant cash advance. One of these is that a business must have a credit score of about 500; it does not matter that the decision to issue a business with an advance has virtually nothing to with this credit score. Merchant vendors merely issue loans based on the projected future credit card sales of the business as well as the operating history of the business which is not expected to be at least 6 months. To obtain a merchant account cash advance, a business is also likely to have a physical location as online based businesses are excluded for an advance.

What is involved in merchant cash advance and what are the benefits?

It does not take much regarding time and resources for a business to secure a merchant advance. All it requires is for the business to contact the merchant lender and submit the required information and documents. It is the responsibility of the lender to determine if the business in question is eligible for an advance. If the merchant account cash advance provider is satisfied that the business, then all other things such as the factor rate and holdback amount can be decided on. It is the factor rate that determines the amount that the business pays for the advance while the holdback amount represents the amount of the daily credit card sales that is committed to paying back the advance. The merchant after that continues to make payments to the lender; the payment is often facilitated by the credit card processor of the borrowing business.

The reasons merchant account cash advance is being embraced by small businesses around the country cannot be overemphasized. For the vast majority of small businesses, it is the desire for quick funds that has driven them towards merchant cash advance providers. And for a significant amount of businesses also, it is the search for unsecured loans—because they have been unable to provide collateral needed for bank loans which are cheaper—that draws them to merchant vendors. For some others, it is the fact that they need funds urgently and cannot afford the uncertainty associated with banks where their applications most likely to end up in being rejected, that motivates them to seek out merchant account cash advance lenders. All this goes to say that the benefit one business derives from adopting merchant cash advance might as well be different from those of another business. Whatever the reason one might desire a cash advance, one can expect not to be disappointed.

67 thoughts on “Understanding the Popular Merchant Account Cash Advance

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