How Do Merchant Cash Advances Work?
Business owners can apply for a merchant cash advance online. When the application gets approved the funding provider forwards or advances a lump sum cash amount.
In exchange for the lump-sum cash amount the business owner then agrees to repay the funding provider with a percentage or portion of their future credit card sales. This includes the fees for the merchant cash advance service. These payments get made until the total amount advanced plus all fees get repaid.
With this type of funding, the more credit card sales a business processes, the faster the merchant account loan gets paid off.
All sorts of businesses that generate strong credit card sales could use merchant cash advances. This includes restaurants, flower shops, retail shops, and boutiques.
How a Merchant Cash Advance Could Help Your Business
Merchant cash advances don’t come with any limitations on how you spend the money. So you get to choose how to best use it to grow your business.
Maybe your business struggles with cash flow and you find it tough to meet your regular business bills and other debt payments. A merchant cash advance could help you meet daily operating expenses.
Some businesses might use a lump sum cash advance to meet payroll obligations during slow periods or seasons. However, doing this on a regular basis could be a sign of other cash flow issues.
Merchant cash advances could also help businesses buy supplies or equipment needed to fulfill a large order or contract.
And merchant processing loans could fit seasonal businesses since you pay less when your sales are lower.
Merchant Cash Advance Basics
A merchant cash advance works differently than a typical small business loan. For one thing, it usually has a shorter time frame. And the lump sum cash amounts are often smaller than traditional business loan amounts. However, these merchant advances come with higher costs.
With this kind of arrangement, you agree to receive a lump sum of your future credit card sales immediately from a third party, instead of waiting weeks/months to get the full amount from the credit card company. This is known as an “advance.”