Businesses often need a quick infusion of additional capital to handle unexpected emergencies or take advantage of limited-time opportunities. One option that can meet the needs of a situation such as this is a merchant cash advance. Here are some things you should know about this method of funding.
How a Merchant Cash Advance Works
A merchant cash advance differs from a standard loan in that you are not merely borrowing money, but instead receiving an advance based on future credit card sales. It generally suits businesses that process a high volume of credit card transactions such as restaurants, medical offices, and retail stores. To pay back the funds, you usually give lenders a percentage of daily credit card sales. This continues until the debt is paid off.
If you are considering applying for a merchant cash advance, it is important that you are familiar with terms that apply to this financing method. For instance, the holdback is the percentage of your credit card sales that goes toward your debt repayment. This is typically between 10 and 20 percent. Distinct from the holdback amount is the interest rate, which is the amount that you are charged for the loan.
Advantages of a Merchant Cash Advance
A merchant cash advance might be a good fit for your business if you need funds right away. You can generally receive the advance within a day to a few days after your application is approved. If your company experiences a sudden temporary setback or you discover a fleeting opportunity for growth, a merchant cash advance can rapidly have financing available to you.
Because of the relatively high cost of a merchant cash advance, some business owners prefer to look into other financing options. These include business lines of credit or short-term loans, either of which can also offer you an influx of funding that boosts cash flow.
For more advice on a merchant cash advance and other methods of business funding, get in touch with Northgate Capital Finance.