What Should I Know About a Merchant Cash Advance?

Entrepreneurs are known for their ability to look for alternative solutions to challenges. There are several alternative loan options available. If you need an influx of cash in a short timeframe, a merchant cash advance may be the best option. These loans offer money based on your daily sales volume. A portion of every credit card transaction goes to the loan payment. Here are some questions to ask before applying.

What Is the Application Process?

Non-traditional lenders do not typically have as many application requirements as traditional lenders. Lenders calculate your ability to repay based on solid sales history. Most often, you will need to provide:

  • Bank statements
  • Credit card sales transactions
  • Cash flow statements
  • Tax returns
  • Personal identification
  • Business License

When Do I Need the Cash?

A merchant cash advance lender can provide you with cash in as little as two business days after approval. You can start taking using cash for your business almost immediately. In times of restricted cash flow or unexpected expenses, these loans can help keep your business moving forward.

How Do I Accept Customer Payments?

Most lenders consider you eligible for these cash advances when monthly credit card receipts are more than $4,500. Each lender may have different requirements, so consider all your options.

What Are Repayment Terms?

Repayment terms vary by merchant advance lender. Some may require a minimum monthly payment. If credit card receipts are insufficient to cover that amount, the lender withdraws the difference from your bank account. Some loan terms are for a set number of months – typically up to 18 months. The merchant accepts the payment daily, weekly or monthly, based on your contract terms. Some lenders allow you to pay a percentage of credit card transactions. Increased sales help you pay the loan off earlier.

Should I Secure the Loan?

By nature, these cash advances are typically unsecured. However, a lender may require that you offer collateral to secure the loan. Businesses open for less than a year or in a sales decline may have to apply for a secured loan.

Do I Sign a Confession of Judgement?

No business owner accepts a loan without the full intention of repaying it. Defaulting on a merchant cash advance can be detrimental to your business. A confession of judgment allows the lender to start legal proceedings and seize business assets without notifying you. Be sure to speak with a real estate attorney before signing closing documents.

As with any financial tool, evaluate the advantages and disadvantages. Creating a sound financial strategy can help your business succeed.


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