With tighter lending practices now in place at banks and other lending institutions, business owners may find themselves caught in the squeeze of needing a cash advance during a slow season or a temporary business setback but unable to get funding through traditional means. Many business owners are turning to a Merchant cash advance as a viable alternative for securing needed cash. This type of loan is simply an advance on a certain percentage of future credit card sales. While it may seem that this type ofBusiness cash advance might not be a good idea, it does have a number of benefits.
Typically a business will contract with a cash advance provider for a specific amount of money up front, such as $30,000. The business will receive the $30,000 to use immediately and then repay the loan plus a loan fee of about $5,000, depending on the terms negotiated, back to the loan provider through a percentage of credit card sales. The loan is satisfied when the full loan fee is met through the agreed-on credit sales, a process that usually takes from three months to a year, depending on the terms of the business loan. The original loan amount is determined based on the average monthly credit sales the company does.
There are some different ways in which loan providers receive their money. The most common technique is to have the credit card company split the credit card payment between the business and the loan provider. Less popular methods include directly paying the loan from the business bank account by the loan provider or depositing the credit card payments in a holding account, which is then divided between the business and the loan provider.
Most companies find it’s very quick and easy to apply for a receive a merchant cash advance. Loan providers can give an approval within 24 hours and the money can be made available to a business in as little as 48 hours after the application is made. The business applicant’s personal credit is reviewed during the application process, although many loan providers don’t require stellar credit scores to make loans. For the small business owner who feels he has nowhere else to turn, a business cash advance can help him deal effectively with a problematic cash flow situation.