Cash Questions: How Does a Merchant Cash Advance Work?

Your business has undergone a sales dip as of late. You’re struggling to pay your employees. You must also pay rent for your commercial space.

You look into a term business loan to keep you afloat. However, your credit score isn’t that great. You apply for a few loans, but the bank denies you outright, citing your low credit score.

To make matters worse, the loans that you applied for has dragged down your credit score even further. Then, you come across a merchant cash advance for businesses. However, you don’t know how the process works. 

What is a cash advance? 

Merchant cash advance companies give business owners an upfront loan, and the owners pay it back over time via credit card transaction or business revenue. It also comes with shorter terms.

Best of all, you’ll pay a smaller payment throughout the term of the advance. This article will provide an in-depth look into merchant cash advances. Read further to know more. 

Can I Get a Cash Advance if I Have Low Credit? 

This program is an excellent option for business owners with less than stellar credit. Many owners don’t have the necessary credit to obtain a standard loan from a bank. In addition to low personal scores, many owners also have low business credit scores that prevent them from obtaining financing. 

Many alternative loan companies offer business loans as well, but you may find yourself ineligible due to a lower credit score or lacking business income. 

In addition to a high credit score, you may need the following to qualify for a conventional business loan:

  • A track record of good business activity
  • Heavy collateral that will cover the loan

If you don’t qualify for a business loan, you stand a better chance with an advance system. A merchant cash advance isn’t a loan at all. Rather, you’re borrowing a set amount, and the lender benefits from your future sales or credit card transactions.

Instead of putting up collateral and boosting your credit score, your collateral would derive from your future business transactions. Under an advance program, lenders are more concerned about your future business transactions instead of your credit score.

Therefore, you must have a minimum amount of sales and transactions to meet your debt obligations each month. If you’re undergoing hard times, you also can pay a smaller amount until you’re in a better position to pay more in the future. 

How Is a Cash Advance Better than a Bank Loan?

A merchant cash advance is primarily better than a bank loan due to the flexible qualification measures. Since merchant cash advance collections stem from your business income, you only pay back the lender as you generate revenue. With conventional business loans, you must still make the payment regardless of your revenue status. 

Also, many business loans have collateral obligations. With a collateralized loan, you’re forced to pledge your most precious assets to qualify for a business loan. Many borrowers must pledge the following assets as collateral:

  • Cars
  • Stocks
  • Bonds
  • Houses

If you default on a business loan, lenders can seize the collateral that you pledged during the loan process. As a result, you’ll face additional stress trying to pay back the loan each month.

When it comes to loan defaults, you also risk significant damage to your credit score. Worst of all, you may lose access to future loans and credit until you can recover your score. An advance offers more flexibility in terms of payments.

Best of all, merchant advance programs have higher approval rates than most business loan programs.  

How Can I Use My Funds?

You can use the advance however you please, so long as you pay back the advance in a timely fashion. You can also spend it on any area of your business that needs improvement. You can spend it on the following ventures:

  • Paying employees
  • Improving marketing strategies
  • Implementing renovations
  • Paying off business debts

On the other hand, a standard business loan may come with some restrictions. If you get an SBA loan, for example, you cannot pay off debts or buy additional inventory. Moreover, getting a loan from the SBA is a cumbersome process fraught with heavy delays and tight restrictions.

How Fast Can I Get My Cash Advance?

Standards vary based on the lending institution, but the best lenders offer funding in the next business day. A merchant cash advance is a far cry from other business loans where you must jump through hoops to get your loan, especially for an SBA loan. 

A business advance is among the fastest ways to get the financing you need. You can get approval in as little as 24 hours. You don’t need to fill out much paperwork either. 

Further, it’s the best option if you need your emergency financing sooner rather than later. 

What Are the Qualifications?

The requirements depend on the lender, but the most common requirement is that you must be in business for a certain period. Some core cash advance standards include:

  • Must be in business for six months or longer
  • Must have at least $5,000 in business revenue or over

With most advance programs, you can also borrow between $3,000 and $500,000. The typical program offers terms between six and nine months. With that, the lender will determine the terms and conditions of the loan.

Where Can Find the Best Deal?

You can refer to merchant cash advance brokers who will work with your situation. A broker can determine if you qualify for a business cash advance. Since the merchant cash advances are very popular, you’ll have no trouble finding a suitable broker of your choice. 

Is a Merchant Cash Advance Right for Me?

A merchant cash advance is the right choice if you’re a business owner who needs quick financing. An advance program offers flexible terms and conditions, with no need to pledge collateral whatsoever.

It’s a great option for borrowers who don’t have enough credit or income to qualify for a conventional loan as well. You can pay back a business cash advance if you’ll have sufficient business income in the future.

Are you considering a cash advance for your business? Click here to learn how you can apply when you have bad credit. 


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