Some businesses don’t have the option to get a loan and may consider a merchant cash advance. Financing companies that provide this type of funding have a high approval rate, but are they worth it? Here are some other advantages of getting a merchant cash advance that may work in your favor.
Getting a loan requires tons of paperwork, but a merchant cash advance is straightforward and requires much less information to be approved. Rather than going over your financial statements, tax returns, and business plans, merchant cash advance providers only take your monthly credit card returns and the amount of time you’ve been open to become approved. The requirements are different for each company, but they’re often low enough for small businesses to be accepted.
Since there is very little paperwork, the process is much faster than if you were to get a loan. Rather than weeks or months, many merchant cash advance providers allow you access to funds within a week of submitting your application (sometimes even as soon as 48 hours after applying). This can be beneficial if a company needs access to funds as soon as possible to begin a project or to avoid loss in capital.
Most loans require that you put up collateral, that way the bank is covered in the event of a defaulted loan. Merchant cash advances don’t require collateral because the funds are usually deducted straight from card transactions at the end of the day or during processing. The approval of your application is based on how many credit card transactions completed. So, if your sales are strong, a finance company can be sure that repayment will happen as scheduled.
There are many ways to pay off a merchant cash advance, but each method is based on credit card revenue. For example, you make $5,000 in credit card sales per month, and a finance company offers a $10,000 merchant cash advance with a 10% repayment term. After the first month of card sales, the finance company will automatically deduct $500 via wire transfer. Additionally, the finance company can take a certain percentage of credit card transactions as they process. However, if you only make $1,500 in sales, the finance company will deduct $150. This type of repayment works well because it works with your revenue rather than a fixed amount.
Perfect Credit Not Required
A struggling small business may not have the ability to get a loan because of a low credit score. Merchant cash advances have high approval rates because a perfect credit score isn’t required. Unlike a loan, merchant cash advances aren’t reported on your credit history and some finance companies don’t check your credit score during the approval process.