Acquiring money for your company using business loans may not be a viable choice for startup businesses. You may be able to meet the bank requirements but have no time for the long application process and collaterals. Operating a successful business is a challenging task especially if you need money to start up. Merchant cash advance companies can be a solution for small and medium-sized companies in their working capital needs.
Merchant cash advance loan companies are increasing becoming more and more popular, with the market currently using loans between $500-$700 million and have the likelihood to hit the $3-5 billion mark within the next couple of years, according to the Green Sheet and Forbes. Find out more about the reasons why cash advance loans are a rising financial alternative to businesses.
What Are the Terms You Need To Know in Merchant Cash Advance?
Merchant cash advance loans are not new, but many people are still in the dark with their fees, rates and terminology. Ask about these terms when you are going to use merchant cash advance companies services. Let’s have a look at what these common terms are.
- Fixed fees/Factor Rate/Buy Rate. A factor rate is needed to find out the total amount of money you need to repay. It is calculated in decimal figures. To do that, you need to multiply your set factor rate and the amount of money you borrowed. So if your merchant cash advance is $10,000 and your factor rate is 1.5, the amount would need to repay is $11,500. The rate can be determined by the number of years you are in business, the stability of your sales, your business tax returns, your credit card processing statements and your business bank statements.
- Withholding Rate/Hold Back Rate/Withholding Limit Rate. Just like the factor rate, this amount varies. The withholding rate finds out how much money the company needs to deduct from you when you reach a certain amount of sales. One good tip to remember is that it is not recommended to have a flexible withholding rate because you want to make sure you know the amount of money you still have left once they deduct money from you.
- Term length. This is the timeframe you agreed.
- Other fees. There may be other fees that will be included, and this varies from company to company. Other fees include origination fee and application fees. If you are unsure of what these fees are, it’s best to ask the company about it.
- ACH Withdrawal or ACH Withholding. This is the kind of repayment method that the company will deduct on an ACH or automated clearinghouse.
- Trust Bank or Lock Box Withholding. This is the kind of repayment method that you can deposit to them to a trust bank or a lock box.
- Split withholding. This is the kind of repayment method that the company will split the sales between you and them.
- This is called the daily repayments made for split or ACH percentage.
- Double funds or stacking. If a business has two outstanding merchant cash advance, it is called stacking. The second advance loan is used as an ACH daily repayment.
If you’re interested in getting a merchant cash advance, make sure you understand and agree to the terms and conditions of the deal. Ask if they can send you a draft copy of your agreement so that you can study them further. If you’re looking for a reliable company, check the top merchant cash advance companies and find out if they’re right for you.
What Are the Guidelines in a Merchant Cash Advance?
Each merchant cash advance company has its own requirements and the terms and conditions may vary depending on the business. You can use these guidelines to see if a merchant cash advance is a good fit for your company.
- Personal credit score. Your personal credit score should be 500 points and up.
- Business requirements timeline. The timeline is typically within 6 months or more.
- Time needed to process the application to funding. The process can be done within two business days.
- Cash flow or revenue requirements. You must have a proof that you have at least $5,000 a month from your credit card sales.
- What is the amount of loan you can get? It’s ranges from $5,000 to $500,000.
- Does it need any collateral? No.
- Loan terms. It normally ranges from 3 to 18 months.
- Credit or debit card processor. When you start a loan application, it is most likely you have to open up a credit or debit card processor solely for the loan.
Merchant cash advances are ideal because they are released quicker with minimal paperwork required. There is no collateral needed. Many businesses prefer it because they need money immediately. If you’re interested in getting one, you can check on CrowdReviews.com’s reviews of merchant cash advance companies to select the one that can fit your financial needs.
Other factors to consider when using merchant cash advance are the following:
- The guidelines we’ve just talked about cover most of the requirements. However, depending on the company, they might need additional documents.
- Demographics are not important in a merchant cash advance and can be used even for travelling. Payments are also reasonable and would depend on your credit card profits.
- Since you’re using a credit or debit card, you might encounter card limitations.
- Funding speed. Merchant cash advance is one of the quickest ways to get funds for your business.
Using a merchant cash advance company is just one alternative option for financing a business. If you want to know more about the kinds of financing lenders available, check out BusinessLoans.com’s article on other financing options. Additionally, if you want to find out about the factors in choosing a merchant cash advance, you can read Business.com’s article on using merchant cash advance for small businesses.
Although getting a merchant cash advance may be more costly than the traditional loans, many businesses are looking to these lenders because of the fast process and minimal business requirements. It is recommended to research with due diligence of these companies before applying for a loan. Look at CrowdReviews.com’s merchant cash advance company reviews to know what company is best for you.
Can My Business Benefit From Merchant Cash Advance?
One of the good things about merchant cash advance providers is that they can cater to a lot of business industries. These include:
- Automobile repair. This includes businesses such as car wash shops, automobile accessory shops, tire business shops, transmission and auto repair shops and auto repair centers.
- Beauty and cosmetics. This includes businesses such apparel shops, beauty parlors, health and beauty spas, massage spas, nail salons, hair salons, weight loss businesses, health and nutrition shops.
- This includes businesses that specialize in dental practices and orthodontic services.
- This is the biggest chunk of the industry that uses merchant cash advance. This includes businesses such as coffee shops, restaurants, personal services, gyms or fitness gyms, grocery and hotels.
- This includes businesses such as hotels, inns and lodges.
- Health and medical. This includes businesses that specialize in medical practice, optical health, health care facilities, medical equipment, oxygen equipment and home therapy.
- This includes specialty restaurants such as pizzerias, steak houses, Greek restaurants, Indian restaurants, Japanese restaurants, Italian restaurants, et cetera. Also, consider fast foods, grilles and bars.
- This includes businesses such as cigarette shops, pet stores, livestock products, pet products, pet boutiques, janitorial supplies, hardware supplies, clothing, grocery stores, bowling, wine stores, photography stores, dollar stores, manufacturers, novelty item stores, bookstores and a lot more.
- This includes businesses in the plumbing industry, music, printing, photography, wedding, home contractors, dry cleaning, cruise lines, pest control, sewing, consultancies, among others.
No matter what industry you’re on, the top merchant cash advance companies can help you find the best solution for your financial needs in your business. However, there are other financing options you can choose from if you believe that this option is not right for you.
Running a business is not easy. It takes courage and funding. You need to make sure that your funds are always constant and if you think it’s not enough, you need to find other alternatives to support it. You just don’t need money at the start; you need to grow your finances.
It’s like planting a tree. You need money to advertise, letting people become aware of the goods and services you are offering. Then you need to have an effective sales and marketing strategy to make sure you have enough customers. You need money for improvements and for expansions. If you’re having trouble in financing, why not take a look at CrowdReviews.com’s reviews of merchant cash advance companies to use cash advances as an alternative source of funds?
Trevor Price
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