Why you should consider a merchant cash advance

For any small business, getting off the ground is usually the hardest part. You might need a little financial help getting the ball rolling and traditional bank loans aren’t the right choice for everyone. There are many forms of alternative finance, one being a merchant cash advance.

Merchant cash advances aren’t for everyone, but they are becoming an ever-popular form of alternative finance. They work really well for businesses who make the majority of their money through credit card terminals, such as restaurants, salons and shops. 

How does a merchant cash advance work?

When you take out a merchant cash advance, typically you’ll be given the equivalent of your average monthly turnover and you repay this, plus a small fee, through your card receipts until the finance is paid off. It’s essentially a purchase of your business’s future sales.

Whereas traditional bank loans require you to pay back a set amount of money over set dates in time, a merchant cash advance allows you to make repayments at any one time proportional to your credit card turnover. It’s flexible, scalable and manageable and it means that if you go through a lean period, you pay less money back during that time. In peak season when you’re bringing in more money, you’ll pay back more.

What else should I know about merchant cash advances?

Many small business owners don’t want to go down the route of a traditional business loan, so the fact that a merchant cash advance is technically considered a sales transaction as opposed to a loan is an attractive prospect because it doesn’t appear on your credit report.

That doesn’t mean however that if you have a bad credit report and a history of falling behind on payments or having insufficient funds that you’ll be guaranteed to be accepted. Delinquencies and negative balances are still likely to send a provider running. After all, they’re lending you the money on the basis that they will get it paid back. Make sure you’re on top of all your bills and payments to creditors with all your paperwork in order.

Make sure you also pin down your goals in the early stages so that you don’t end up spending your merchant cash advance money on other things. Whether you’re expanding your business, purchasing new equipment or hiring more employees, decide how much it’s going to cost you. Ultimately, the merchant cash advance provider that you choose will decide how much money you qualify for but there’s no harm in knowing how much you’re interested in receiving.

You also need to decide on your repayment period. This depends on your individual circumstances. It could be a month or it could be six months. If you’re using the money to cover something long-term such as a renovation, choose a longer repayment period. For short-term projects such as new equipment, you should aim to get it paid off as soon as you can.

Ok, what’s the catch?

As with anything, it’s not all sunshine and rainbows. There’s some things to be aware of if you’re going to take out a merchant cash advance. Firstly, the market is still largely unregulated so there’s no limit on interest rates and repayment options. There’s a lot of different providers around and they’re all different, so you need to pay close attention to the terms.

Another thing to remember is that a merchant cash advance is not going to be the right alternative finance option for everyone. It only works if you make the majority of your business through credit card receipts. It’s not a one-size-fits-all finance solution. If you’re interested in other forms of alternative finance, check out Choice Business Loans and take a look and the options they offer. They can even advise you on which would be the best fit for you. 

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