A payment service provider (PSP) lender offers merchant cash advances (MCAs) as an alternative funding option. These MCAs entail a lump sum cash advance based on a business’s activity and history as a merchant with the PSP lender. The repayment of this advance occurs over a specific, predetermined period, with repayments being debited from future customer payments.
This explanation details the mechanics of a merchant cash advance, highlighting the lender and the repayment structure based on a business’s merchant history and activity. The repayment process involves debiting future customer payments to fulfill the advance.
Seven benefits of a Merchant Cash Advance
Seven compelling reasons make merchant cash advances (MCAs) an attractive choice for SMEs, outweighing the limited drawbacks associated with this funding option.
1. Quick Decision
Payment service providers process numerous rapid transactions daily through terminals, allowing them to swiftly make decisions regarding the provision of a lump sum for business advancement. The typical turnaround time for processing an application is within 48 hours, though it may even be faster.
For individuals and businesses already engaged as merchants, a crucial initial step has been surpassed, given the stringent criteria lenders impose prior to permitting card transactions through a terminal. Credit checks are a standard part of the onboarding process, placing the business in a favorable position to secure a cash advance, especially if actively processing payments through their terminal.
2. Suitable for Businesses With Short Trading Histories
Payment service provider (PSP) lenders possess deep industry knowledge, particularly in the retail business sector, a significant source of their business revenue. They leverage this expertise and access to relevant data, such as turnover, to gauge the potential success of a venture.
Their primary focus is on businesses in high street retail, and in their quest to attract startups, they are willing to take comparatively higher risks than traditional financing sources like high street banks. This predisposition allows them to be more receptive to cash advance requests from newly established businesses.
For businesses in their nascent stages of trading, approaching a payment processing lender for a cash advance can be advantageous. These lenders are inclined to support such requests as they have a vested interest in the success of the businesses they serve.
3. Flexible Terms
Merchant cash advances distinguish themselves from conventional business loans by not entailing a specific outstanding loan amount, interest rate, or term. Instead, this funding method involves selling a portion of future sales to the lender at a discounted rate. Repayments are directly linked to the amounts processed through the card terminal, constituting a percentage of customers’ card payments.
This repayment structure proves advantageous for businesses experiencing fluctuating trading periods, such as seasonal enterprises. The payback system aligns well with business dynamics, whereby payments increase during peak customer activity, correlating with higher profits.
4. Your Choice of How to Use the Advance
The payment processing firm providing the advance does not impose restrictions on how the funds are utilized. The expenditure is expected to benefit the business, potentially enhancing its profitability and overall performance.
The usage of the advance can vary, including utilizing it for cash flow improvement, acquiring equipment, enhancing premises, hiring additional staff, and other ventures conducive to business growth.
5. Competitive Interest Rates
The charged rate for the cash advance is contingent upon several qualifying factors, encompassing the granted lump sum, the repayment duration, and the risk assessment conducted by the payment service provider (PSP) following a credit evaluation of the business.
Diverse lenders offer varying rates, providing businesses an opportunity to compare and potentially secure a favorable deal, especially if nearing the end of a contract or in the process of renegotiating terms and costs.
6. Build up a Credit History
For newly established businesses, obtaining credit can pose a challenge due to limited credit history. However, if the business is already affiliated with a payment provider as a merchant, it would have undergone certain checks as part of the onboarding process. Considering this context, accessing a $500 cash advance no credit check can be a viable option to overcome credit-related obstacles.
Opting for a merchant cash advance can positively impact the business’s credit rating. This improvement can prove advantageous in the future when seeking larger loans with more favorable terms.
7. Works Alongside Other Funding Streams
In situations where an individual or business possesses fixed-term loans or has accessed various credit facilities, the consideration of requiring additional credit is common. Within this context, a payment advance emerges as a viable augmentation, providing supplementary financial support.
The payment advance can be perceived as a complementary line of credit, effectively coexisting with pre-existing funding alternatives. Additionally, if this stands as the sole loan in one’s portfolio and is managed judiciously, it could enhance one’s prospects with alternative lenders during the loan application process.
Understanding the nuances and implications of cash advance loans is essential for making informed financial decisions. Careful consideration of terms, associated costs, and potential impacts on financial health is crucial before opting for such a financing option.