Technically, a merchant cash advance is not a loan. Instead, it’s a cash advance usually based upon the credit card sales of business. It is possible for a small business to apply for a merchant cash advance and have the cash transferred into its account quickly.
Merchant cash advance lenders will access risk and weight credit criteria in a different way other than that of a bank. A merchant cash lender is concerned with daily credit card sales since they will sue it to find out if your business is capable of repaying the cash at the required time. Essentially, a small business agrees to sell a percentage of future credit card sells to get the needed funds immediately.
How to determine if a merchant cash advance is suitable for your business
A merchant cash advance is the best alternative when a company needs some cash to quickly take advantage of an opportunity to purchase the inventory at a reduced price, a unique marketing venture. The funds can also be used to solve a short term financial problem of your business. Since the credit requirements are less strict, this is the best alternative for a business that does many credit card transactions but might have a bad credit history.
The application process
Depending on the paperwork and other information, the time it take for your merchant cash advance to get approved is mostly from hours to few days. The moment your application is approved, the funds will be transferred to your business account within 48 hours.
On top of that, the application process is not as complicated as that of a traditional loan. Below are the steps a business is required to take:
Apply for financing
Normally, the application is one or two pages, and you will need to produce your social security number, business tax ID and other vital information concerning your business.
Give out your documents
In many occasions, you might be asked for numerous months old credit processing and also your bank statements. Besides, you will also be asked to show proof of citizenship and provide a copy of the lease for the business location.
It usually takes as fast as 24 hours for your business to be approved for a merchant cash advance.
Set up the credit card processing
This form of financing might force the business to shift to the new credit card processing company. Even though switching processors can be inconvenient, sometimes it’s a requirement for some of the merchant cash advance lenders.
After you have gone through the process, the funds from the merchant cash advance will be transferred to the bank account of the small business and repayment through the merchant account will commence immediately.
This form of funding is not characterized by building credit since the merchant cash advance lenders do not report to business credit reporting companies. Note that the rates offered by the merchant cash advance lenders are much higher as compared to other forms of financing. It is imperative to ensure that the ROI is positive before signing the agreement.