Merchant Cash Advance

Merchant Cash Advance

A merchant cash advance is a viable way to secure quick cash. Businesses face emergencies and unexpected opportunities that require money to handle. Cash advances, factoring, credit cards, and bank lines of credit are all options, but not for every company. Like other business services, a cash advance is something to be used only in the right circumstances with a full knowledge of the risk and benefits.  

Merchant Cash Advance Functions:

Every business owner encounters circumstances where a short-term loan is either useful or critical. The usual options of a loan or a credit card might not work. Factoring is not a good option in many cases. A company that gets significant revenue from credit card users may be able to get an advance against those receipts. Cash advances meet a certain need because companies that can’t access other sources of cash still need short-term needs.

The quick cash might be useful in recovering from a natural disaster or capitalizing on an opportunity.  A bar suffers damage from a hurricane and then suffers further losses because tourism has gone down. Another business, one with limited credit, sees an opportunity to expand production of a hot item and doesn’t have the resources. Both businesses could be well served by a cash advance, assuming reasonable payment terms.

Managing Risks and Expenses:

The risks and expenses of a merchant cash advance make this an option to use with care. Merchant cash advances can come with high costs, in premiums or interest. Business owners need to evaluate a merchant cash advance firm with at least as much care as might be used to screen a bank or a law firm.

Verify a few details about the lender. They should be licensed to do business in the state or province. Doing business with a regulated online company or a storefront lender licensed by the state will make the process less risky. The lender’s background and focus also matter.

Ideally, the lender will be familiar with the borrower’s industry or business model. A merchant cash advance firm needs to be familiar with a certain industry in order to offer terms that make sense for a client’s business processes.

Make sure the advance can be paid back in a few months to a year. Because the premiums or interest rates add up quickly, the business needs to pay back the advance before premiums or interest eat up any financial gain from taking out the advance. Careful planning can keep cash advances from producing even greater financial distress.

Merchant Cash Advances are a Tool:

Business owners have a variety of financial options to use, depending on the size and nature of the business. Factoring and credit lines could be available to some businesses. Others, with limited credit and few invoices due would need another means to raise short-term cash. A little information gathering will reduce the risk from using a cash advance. A merchant cash advance is a good financial tool; one of several a business owner can use to meet short-term spending needs.