New and alternative finance options include merchant cash advances (MCAs). A payment service provider (PSP) lender may grant your firm a lump sum cash advance based on your merchant activity and history.
It’s simple: you repay the merchant advance over a set time and deduct it from subsequent customer payments.
Here’s how cash advances operate, who offers them, and seven business benefits. You can then decide if the choice is good for you and your organization.
Seven Merchant Cash Advance Advantages
Merchant cash advance (MCA) has few downsides and numerous benefits. Seven key reasons why SMEs should explore this funding option.
- Quick choice
Payment providers execute tens of millions of lightning-fast terminal transactions everyday, so they can act rapidly when opting to advance your organization a lump sum. Application turnaround is usually 48 hours, although it may be faster.
As a merchant, you’ve already passed the first test because lenders have tight requirements for terminal card transactions.
You and your business will have undertaken credit checks during onboarding, so you may be eligible for a cash loan if you’re already processing payments through your terminal.
- Good for new businesses
PSP lenders specialize in retail, their main revenue stream. Data like turnover gives them insight into who will succeed.
Competition to sign startups is fierce on the high street, their mainstay. Thus, they can take more chances on a new endeavor than high-street banks.
Since the payment processing lender wants you to succeed, they may approve your cash advance request if you’ve just started trading. If you start quickly and process many payments, you may qualify for a cash advance. MCAs are unsecured, therefore you don’t need collateral.
- Flexible terms
Merchant cash advances differ from business loans since they discount future sales to the lender instead of having a loan amount, interest rate, and period. Thus, you pay back a percentage of your clients’ card payments and receive reimbursements proportional to the quantities you handle through your card terminal.
If your organization is seasonal and has slower trading periods, this payback strategy may be ideal. You could consider the advance the perfect fit for your business because more clients and profit mean higher payments.
Lenders usually charge a percentage of accepted payments. Depending on the volume of card terminal payments, you can clear the advance faster, minimizing interest. The lender may include a sunset provision, a future date to repay the advance.
- Your advance usage decision
The payment processor won’t explain how to spend the advance. Whatever you spend it on should benefit the business and boost profits and performance. You can utilize it to boost cash flow, buy equipment, beautify your space, hire more workers, etc.
- Competitive interest rates
The rate you pay depends on the lump sum, the length of time you’ll pay it back, and the PSP’s risk assessment of your firm after a credit check.
Depending on your lender, you may be allowed to shop around for the best rate if you’re out of contract or near to renegotiating.
The rates may be higher than a bank loan, but there are perks and cons. Flexible, unsecured advance. Your card processing history and a light credit check may be enough for the processor to analyze your transaction history.
- Establish credit.
New businesses may have trouble securing credit. Your payment provider will have checked you if you’re a merchant.
An advance can boost your credit. Your credit file will be considered by future lenders if you seek a large loan on better terms.
- Ccomplements other funding
If you have fixed-term bank loans or other credit, but you need extra company credit, the payment advance can be a great addition.
You might consider it a line of credit with other funding choices. If it’s your only loan and another lender sees you’ve managed it well, it could help you get other loans.
Are merchant cash advances good for your business?
Merchant cash advances might provide a swift cash infusion for your firm, depending on its needs. The merchant doesn’t stipulate how to use the cash advance, however, you can use it to smooth cash flow or buy assets. If you don’t know what to use better than MCA or small business lending, check out Fundshop.
The loan should mirror your performance because it’s based on transaction volume. As consumers go cashless, retail businesses presumably sell most of their goods through their terminals. In certain ways, borrowing from a main business partner makes sense.