In case you are faced with a capital crunch that is dragging your business behind, a cash advance loan could be the solution to it. While this has been suggested as a quick run to option, you need to consider what cash advance business loans are all about. The limited access to traditional loans coupled with their stricter regulations have led to the mushrooming of newer, quicker though more expensive nontraditional options. Cash advance business loans are some of the best examples of the alternative lending options. In this article, we will explore merchant cash advance loans, which are a good example of the cash advance loans.
Definition of a merchant cash advance
This refers to a form of alternative lending where you are given an advanced sum of money that could be used as a form of capital or for business expansion. It is a quicker option and most of the dealers in it can process your loan in just a day or at most two days. As is the case for other business loans, you will be legally required to pay up the whole amount that has been loaned to you coupled with an interest on it.
The payment agreement is quite different from the other lending options, you will be required to pay back the loan based on a fixed percentage of your daily credit sales. The amount varies depending on the number of credit sales per day, a larger amount will be taken on days with high credit sales and the case is vice versa for the less active days.
How do the merchant cash advance companies work?
As alluded to in the previous section, after applying for a cash advance loan, chances are high that the loan will be approved and disbursed to you in just two days. The payment will be based on a specific or rather fixed percentage of your daily credit sales, this being undertaken till the cash advance loan is fully paid. The agreement could either be that a larger percentage of your daily credit sales will be taken for quick clearance of the loan. On the other hand, you might choose to pay a smaller percentage with the implication of this being that much time will be taken to fully settle the loan.
On average, it might take about 8 to around 9 months to clear a merchant cash advance loan. The lower limit is within a period of 4 months but it could also last for as long as 18 months. Merchant cash advance loans are a good and quick option for those seeking for a fast and more reliable lender in terms of loan approval. During the periods when your business will record low credit sales, fewer amounts will be deducted. On the contrary, a period characterized by high credit sales will see the merchant advance company making more profits.
Having looked at some of the basic components of the merchant cash advance loans, you will be in agreement with me that they are a quick but expensive option in the long run. They have been considered as the most expensive alternative lending options but they could be quite handy when a small business owner is in dire need of a quick cash advance loan, either to meet recurrent business expenses for critical business expansion.