merchant cash advance

7 Key Advantages of a Merchant Cash Advance

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Are you applying for business loans and facing rejection at every turn? Applying for multiple loans at once can decrease your credit score.

Instead, go with a safer bet: a merchant cash advance. What is a merchant cash advance?

This funding option is a lump sum given to you in advance. Borrowers are selling a portion of their future business income.

The lender will make daily or weekly deductions from your credit card sales until you repay the loan in full. The borrowing amount typically ranges between $5,000 to $1,000,000, but the amount depends on the lending guidelines.

Some benefits of a merchant cash advance include a quick approval process and lenient standards.

This article will highlight the features of a cash advance for businesses. Let’s explore. 

7. Fast Cash

Most lenders provide cash advances within a week. You can also receive approval in less than 24 hours.

In other cases, you could receive approval in as little as a few hours. At max, the approval and funding process can take three days. 

Many online lenders provide an online application where you input information about your business. They also allow you to upload business documents showcasing your income. In many cases, the application process takes around five minutes. 

For conventional business loans, you may have to wait a week or longer to receive the loan. If you apply for a loan through the Small Business Administration (SBA), you could wait six months or longer to receive the funds. You may go through additional hurdles that slow down the approval process. 

6. Added Flexibility

Paying back the loan is more flexible because the percentage model adjusts to your income. The percentage will remain the same regardless of your income status. A daily or weekly plan allows lenders to deduct small percentages, with no need to worry about monthly payments. 

You may also have the option of a daily or weekly deduction plan. The deductions will continue until you pay off the balance.

The lender may choose a weekly or daily plan for you, but you can negotiate the right payment plan for you.

5. No Need for Great Credit

Merchant cash advance loans usually don’t require stellar credit. Lenders care more about your business income than your personal or business credit profile. 

  • Note: Even though credit isn’t the primary indicator, lenders still check credit scores when assessing your application. Keep in mind that you may get a higher factor rate if you have a lower score. A factor rate is an interest rate expressed in decimal form.

Overall, lenders generally prefer scores between 500 and 600. In some cases, lenders will accept borrowers with lower credit scores. 

If your annual business income exceeds the minimum threshold exponentially, lenders are more likely to ignore lower credit scores. Many lenders prefer to see annual business revenue of at least $150,000. However, lenders have different standards when it comes to business income. 

Conversely, conventional business lenders rely heavily on your credit scores. In many cases, lenders won’t lend to any borrower with a score of less than 620.

Other lenders may want a minimum score of 680. Additionally, many businesses don’t have a business credit score. Therefore, traditional lenders will further scrutinize your personal credit. 

4. Use the Money How You See Fit

Merchant cash advance lenders don’t care how you use the funds. They want to know if your business income is enough to pay back the loan.

You can use the money to grow your business or sustain your business during tough times. When it comes to using your advance, you’re only limited by your imagination.

Business owners can use the funds for the following purposes:

  • Opening a new store
  • Expanding your marketing budget
  • Hiring new employees
  • Paying down debts
  • Starting repairs and/renovations
  • Paying vendors 

On the other hand, conventional business loans may dictate how you can use the funds. 

  • Example: An SBA loan doesn’t allow borrowers to purchase inventory. For SBA microloans, you cannot pay off debts or purchase real estate. 

A merchant cash advance comes with no such restrictions. 

3. Shorter Terms

A business cash advance usually lasts between three to 24 months. The terms depend on how much you borrow and the lending standards. The lender will structure the lifespan of the loan, but you can request a specific term.

A shorter loan term allows you to pay off the loan within a shorter timeframe. A business loan can last anywhere from three to 10 years. For real estate loans, they can last as long as 20 years.

A longer loan term increases the likelihood of default, especially if you must pay a higher interest rate. Also, your business income may fluctuate throughout the years, making it harder to make the monthly payments.

2. No Monthly Payments 

Lenders don’t require monthly payments as you repay the loan. A daily or weekly payment schedule allows you to pay back the advance immediately. Therefore, you don’t have to save up each month to make a monthly payment. 

1. No Need for Collateral

Many business lenders require borrowers to pledge collateral. Collateral may entail assets in the form of a car, boat, stocks, or house.

Business collateral may include inventory, accounts receivable, or real estate. If you default on the loan, a lender can take your assets to recoup the financial loss. 

However, merchant cash advances don’t require collateral obligations. Lenders will use your income as a primary indicator when approving your application.

How Can a Merchant Cash Advance Improve My Business?

A merchant cash advance can help business owners, regardless of their situation. Advances give owners access to funds that they never would have received otherwise. 

Traditional business loans come with stricter requirements. Overall, merchant cash advances include no collateral, no monthly payments, low-credit approval, faster approvals, and flexible payment plans. 

Do you need funding for your business? Click here to explore your options. 

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