If you're a business owner and you are struggling a little bit when it comes to cash flow, you may be looking into borrowing options. Are you limited to traditional business loans, or are there other alternatives you can explore?
Merchant cash advances are a popular financing solution for a lot of businesses that operate with credit cards and debit cards, but what if your business is exclusively online? How does a merchant cash advance work in that situation? Let's take a look!
What Are Merchant Cash Advances?
Let's start by talking a bit about merchant cash advances - what are they, and how do they actually work?
Merchant cash advances are actually a very interesting borrowing option, because they are not actually loans. As the name suggests, they are advances, from income you will be making in the future, anyway.
What's special about them is that the repayment comes from money you make from credit card and debit card payments. In addition, repayment is not made in fixed, regular instalments; instead, you repay a certain fixed percentage from whatever you make daily or weekly.
That is a unique feature, because it ensures affordability. The percentage you repay depends entirely on what you make, so if you make less money, you also repay less, and if you make more, you repay more, until you've been able to repay the full amount back.
What Do You Need To Apply?
The application process is not complicated, but it is a bit different from a regular loan application, because the requirements are different. You see, the first criteria you need to meet is that your business must operate with credit cards and debit cards. Typically, this would mean in-store, using a POS system, but in this case, online payment is made with cards anyway, so it's not a problem.
The other thing to keep in mind is that there will be a minimum threshold that you need to meet in terms of income from these payments. You will need to make over a certain amount in order to qualify, because you will be repaying exclusively from this category of income, so the lender has to ensure you can afford it.
Some lenders will also require you to have been in business for a certain amount of time - 6 months, 1 year, etc.
How Much Can I Borrow?
As far as borrowing amounts go, that too depends on the amount you make - or have made, more specifically - from transactions with credit cards and debit cards. The lender will use this information to make a projection of how much you are likely to make in the future and thus, how much you can afford to realistically borrow and repay comfortably. The more you make, the more you can borrow, and the more you can repay!
What Advantages Do Merchant Cash Advances Bring?
If you're considering getting a business cash advance, you'll want to know what are the advantages you can expect with this financing solution, compared to traditional loans or other cash advances.
Affordability is built in - Because the amount you receive is based on your income, then you don't run the risk of not being able to actually afford your loan. This advance comes with built-in affordability, which is just one less worry you need to have in relation to your borrowing process.
The repayment process is very convenient - The stand-out feature of this type of cash advance is the way you get to repay the money you borrow. Instead of paying fixed instalments, you pay depending on what you make, which makes it always affordable. Plus, payment is taken out automatically from your account, so you don't even need to remember to make it!
You don't need to provide collateral or a credit check - The problem with a lot of traditional loans is the fact that you need to either have great credit or provide collateral for your loan. There is no such need with merchant cash advances, because there is never a risk of non-payment.
All in all, merchant cash advances can be ideal financing solutions for a lot of different businesses; not only cafes and restaurants, but also online businesses, because of the way payment is set up. Credit card and debit card payments are build into the business model, so you don't have to worry about that requirement. If you're wary of getting a loan because of the implications surrounding repayment, then alternative business loans are right for you and your needs.