AD | The alternative finance world is booming, as entrepreneurs and business owners everywhere become more savvy and look beyond the world of traditional business loans. One alternative form of business finance that has become very popular in particular is a merchant cash advance.
If you’re not sure what a merchant cash advance is, it’s pretty straightforward. It’s essentially a form of alternative business finance for small firms and sole traders whose main business revenue comes through credit card transactions, such as cafes, restaurants, salons and shops.
Whereas traditional bank loans require you to pay back a set amount of money over set dates in time, a merchant cash advance works a little differently. You instead make your repayments at any one time proportional to your credit card turnover, making it flexible, scalable and manageable. If a business goes through a lean period, then less money is paid back during that time. In the height of a business’s peak season, more of the money is paid back.
It’s a great option for those looking for quick and simple finance without having to go down the route of a traditional business loan. Technically, it is considered a sales transaction as opposed to a loan, so it doesn’t appear on your credit report. It’s really important to know your stuff when it comes to successfully using a merchant cash advance, so here’s some tips on getting it right…
Read the small print
There’s a lot of different providers in the merchant cash advance world and they all have different terms. The market is still largely unregulated, so there’s no limit on interest rates and repayment options. You’re sure to find something that suits you perfectly, but you need to pay close attention to the terms.
It’s not for everyone
As we mentioned, this product works best for businesses that make most of their business through credit card receipts. With that in mind, it’s not a one-size-fits-all finance solution – far from it. Businesses such as agencies, taxis and plumbers probably won’t be the right sort of candidates for a merchant cash advance.
Set specific goals
Whether you’re taking out a merchant cash advance to expand your business or if you’re working on a specific project, decide how much it will cost you and pin your plans down in the early stages. Avoid spending money frivolously without meeting those initial goals, as you might find yourself back at square one.
Avoid delinquencies and negative balances
As with all loan companies, they are lending you the money on the basis that they will get it back. Any delinquencies and negative balances will send a provider running. A merchant cash advance is easier to obtain than a traditional bank loan and boasts high approval rates, but you will still likely be declined if you struggle to stay on top of your finances!
Get your paperwork in order
Yes, it’s boring but necessary. Although a merchant cash advance doesn’t require almost as much paperwork as a traditional bank loan does, you will need to provide your credit card revenues so that the provider can determine how much they can afford to loan you. They typically require a few months worth of running costs, bank statements and receipts and any other outgoings.
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