What a Merchant Cash Advance Provider Does
Although the concept is just the same because they are in one cash advance industry, there are still many differences of the merchant cash advance provider compared to the common cash advance providers. If you own a business, but cannot apply for a loan, perhaps the merchant cash advance is for you.
What are cash advances and merchant cash advances?
Many credit card holders probably know and have experienced getting credit card cash advances. This is the basic in the cash advance industry, with the borrowed amount being taken from the credit card. All you need to do is withdraw cash using your credit card as if it is an ATM card, but you will be charged against your credit limit. Because of this, you must only take cash advances that will not go beyond the set credit limit. Also always consider the interest rates of about 20% APR or annual percentage rate.
What is the so-called merchant cash advance provider? It is not a loan provider, but a buyer of future credit card sales.
A merchant cash advance is simply buying a percentage of your future credit card sales. You may say that the money given to the small business owners is a loan, but technically, it is not a loan but a cash advance for the specific sales. The cash advance given to the small business owners is the payment for the future credit card sales. Only that, this money used for buying the future sales has interest rates.
Another difference is that the merchant cash advance is much higher compared to the usual cash advance, which can only be up to about $1,500. A merchant cash advance can be $50,000 or even more. A high amount like this can never be paid by a personal loan borrower, but only by someone with a stable income from a stable business.
How merchant cash advance providers get paid
The interest rates asked by a common merchant cash advance provider is typically at least 20%, but most of the time, it is more than that. Take note also that this interest rate is not an APR, but a monthly rate.
The interest rates are actually taken from the credit card sales of the business-owner. The amount that is being paid regularly for the merchant cash advance provider is not the same amount every month because it will depend on the sales.
This means that the merchant cash advance company gets more if the business is doing well, but not that much if the business is slow. This is a good deal for small business owners because they do not have to be forced to raise money just to pay off the “loan”, especially during the time when business is very slow. After all, the money given to the business owners is not a loan that has to be paid by cold cash, but a portion of the future sales.
Is is it recommended to deal with a merchant cash advance provider?
It is not always recommended to deal with a merchant cash advance provider, especially if you have a better option. For example, loans in a bank are typically cheaper and have more flexible way of paying them off. The only problem with bank loans is that the process requires a lot of documents, and the wait is long.
Many small business owners do not have a good credit rating to be approved for loans from a bank. Unfortunately, many of them also do not have the luxury of time and the resources needed to process all the required documents.
However, if you sell your future sales to a merchant cash advance provider, the process will not require credit checking or processing of many documents. The lender only has to know if you have a good business, how long have you been doing business, and how much your business makes. Documents can be processed within the day and you can get the sales cash instantly, or within the day.
The only problem when dealing with merchant cash advance providers is that the interest rates can be high. Since the money is not considered a loan, then the interest rates and many fees that are included to the cash advances are not regulated the way other loans are regulated. Providers of such cash advance can charge as high “interest rates” as they want. They can even change the rules whenever they want and in the way that can be surprising to the small business owners.
That is why you should really be careful when dealing with a merchant cash advance providers even in the kindest cash advance industry. Read the fine print carefully before signing. Also make sure that the provider is registered and has a good reputation among its “borrowers.”
Also, make sure that you will be dealing with the real merchant cash advance provider and not a third-party middleman. Most middlemen do not know the process of this business and might confuse you with the rates and all.
Dealing with merchant cash advance providers is helpful for people who cannot take out bank loans because of bad credit or the time-consuming, tedious processing. However, just like with everything else, dealing with a merchant cash advance provider must always be done wisely so you can always choose this way to your business’s advantage.