Merchant Cash Advances – What You Should Know
April 19, 2009 by Admin · Leave a Comment
In our current economic times a small business needs to have a certain ability of resourcefulness to enable survival. With loan default rates higher than they have ever been, banks and our traditional lending institutions are not lending money to the entrepreneurs who need it the most. So what does a small business owner do if they find themselves in position needing a loan to help grow their business, yet no bank will help?
One option is a merchant cash advance. These Merchant Cash advance work a similar to a loans- you apply, agree on rates and advance amounts, and then begin repayment. The “advance” that you receive is paid back automatically out of your daily debit and/or credit card sales. You have to meet certain qualifications to be eligible, namely, accepting debit and/or credit cards.
A few other typical requirements are minimum lease agreement for at least one year and not to currently be in another Merchant Account Cash Advance agreement. Having a solid financial history, existing equipment, etc also helps but isn’t the main factoring decisions that secure an approval. These Merchant Account advances are usually easier to qualify for than traditional loans- in some cases up to 90% of applicants are approved for amounts into the hundreds of thousands of dollars.
If this sounds easy, or too good to be true, you’re half right. Merchant cash advance transactions can be expensive, carry onerous repayment terms. What you are basically doing is selling your future sales at a discount to get cash today. The buying selling arrangement is can be anywhere from 1.2-1.45.
What that means is for every dollar you qualify for you are selling for 20-45% less. If you qualify for $10,000 and your buy factor rate is 1.30 then you will essentially pay back $13,000 so that you can have access to Ten Grand today. They way you pay this type of lending back is through your credit card sales. Typically anywhere from 15-25% of your daily credit and/or debit card sales goes directly to the Merchant Cash Advance Provider until the full terms is paid back.
The reason why approval rates are very high is because most merchant account cash advance providers have control of your merchant account. They either make you use a merchant account provider where they have all your credit card sales deposited into a trust fund account first where they then remove their percentage owed and then pass on the remainder to you. They do this because it obviously guarantees payment.
Now there are a few providers that don’t require you to use any one provider and instead put a data feed on your account that pings them of your deposit(s) at which point they then make a automatic withdrawal out of your business account for the amount owed. Some merchants prefer this type of merchant account funding because the deposits are quicker into the Merchants account.
THE GOOD NEWS:
- If you make a lot of sales you can pay this money back very quickly.
- It’s more like a payroll deduction and you typically only pay if you make sales. Because it’s based on your daily sales of credit cards.
- They typically don’t ask what it is for nor do they require any business plan explaining the plan for the extra capital.
THE BAD NEWS:
- It’s really expensive.
- It’s addictive – many merchants go back up to 3-4 times for these merchant account cash advances because of the liquid cash laying around.
- Credit Card deposits can be delayed by 2-4 business days.
BE CAREFUL:
While most merchant account advances can be helpful there are a few things you should avoid:
- Pledging collateral, or giving the provider access to bank accounts as reserves for repayment. Things can get ugly pretty quickly if you aren’t able to repay the advance as scheduled- providers can take money directly from your business checking account, seize, or place liens on business property, and take other drastic actions. Make sure you’re protected by the contract you sign.
- Flexible retrieval rates. These allow the provider to take more out of your daily sales amounts than is safe to continue operating your business. You have to ask yourself, can you business survive without 15-20% of it’s credit card sales…? If the answer is no then this may not be a good retrieval rate for you and you may not want to use a merchant account cash advance.
Merchant cash advances can be a beneficial source of alternative financing for businesses that need cash for operations, business opportunities, or other expenses.
Learn How Merchant Account Cash Advances Work
October 4, 2008 by Admin · Leave a Comment
Having immediate access to working capital is an important business finance tool that is frequently overlooked. Even the most successful businesses frequently need more cash than they can obtain from a commercial bank.
Merchant Account Cash Advance is a small business funding tool we provide to merchants who need immediate cash funding, but cannot secure financing through banks or traditional lenders.
From working closely with hundreds of Canadian Small Business Owners for over five years now, I have learned and understand that a business’s success is sometimes determined by having an emergency capital plan in place to assist the growth of their business.
Why is Merchant Account Cash Advance a popular funding choice for small business owners?
Merchant Account Cash Advances are popular among small business owners for good reason and have many advantages. The funding process is simple and quick. Most applications are funded within five to seven business days.
THIS FUNDING TOOL IS NOT A LOAN!
It is a cash advance based on your future credit card sales, and provides a real solution to business owners who require extra working capital to grow their businesses efficiently, effectively, and seamlessly. Terms are flexible. Renewals are straight-forward and simple.
So simple, in fact, that nearly 70% of all merchants who choose to exercise this type of funding renew upon completing their first funding cycle.
- A Merchant gets working capital quickly, typically in less than seven business days
- No collateral required
- More funding available over time. During a typical three to five year term of a bank loan, a merchant could obtain around five times more the working capital from a merchant account cash advance company
- No bank hassles. No red tape. Easier approval process. (90% approval rate)
- Should not affect a merchant’s ability to obtain working capital from traditional lenders. This type of funding does not show up on credit reporting because it is not a loan. The cash advance company is purchasing an asset from you-your future credit card sales at a discount.
This is not a “Lender-Borrower” relationship. This is a “Buyer-Seller” relationship.
- It involves automated collection from a merchant’s Debit/Credit Card Processing. It is more like a payroll deduction. The percentage the funding company retrieves does not change. As a result, if a merchant’s sales volume declines, the funding company retrieves less and if a merchant’s sales volume increases, then the funding company retrieves more. Therefore, this type of funding works with a merchant’s cash flow.
- The money can be used for anything the business owner chooses. No business plan or previous tax records are required to be qualified for funding. NO RED TAPE.
What can the funds be used for?
- Additional working capital
- Equipment purchases
- Opening new locations
- Renovating or remodeling your business
- Advertising
- Cash flow needs for established seasonal businesses
- Purchasing additional inventory
- Emergencies
- Buying out your business partner
- Funding payroll
- Paying Back Taxes
- Paying Debt
- Whatever you want!
How do I know if I’ll qualify?
A Merchant Account Cash Advance is very simple and straight-forward. There is no collateral required. The funding is based on your future debit and credit card sales from the previous year to present.
What you will be required to supply to qualify:
- Four months of debit/credit card statements from the previous year (12 months for seasonal businesses)
- Landlord information-must have a 12 month lease or more
You business MUST NOT:
- Generate less then $10,000/month in debit & credit card sales
- Have no more than $175,000 in unresolved liens
- Be behind more then one payment for business rent or business mortgage
Merchant Account Cash Advance FAQ’s
Q: HOW LONG WILL I HAVE TO WAIT TO FIND OUT IF I HAVE BEEN APPROVED FOR MY FUNDING?
A: Once we receive the appropriate paperwork it usually takes 48 hours to get approval and typically takes 5-7 business days to fund the cash advance to your bank account.
Q: HOW MUCH CAN I QUALIFY FOR IN A CASH ADVANCE?
A: Your cash advance is based on your average amount of sales in a month, which is figured out by your average credit card sales from previous merchant account statements. We can fund amounts from $7500-$100,000 per business. We have access to a $500 million portfolio that is available to businesses like yours. The question really is, how much do you want?
Q: HOW DO I REPAY MY BUSINESS FUNDING?
A: The Merchant Account Cash Advancing Company collects a small percentage of each of your debit and credit card transactions until the full terms are fulfilled. Typically the retrieval rate is 20 percent or less of your daily credit and/or debit card sales.
Q: CAN I USE MY CURRENT DEBIT/CREDIT CARD PROCESSING PROVIDER?
A: Yes and no. The Funding Company requires that you use an approved processor who is certified to administer their program. Most processors are approved, but some are not. If you are not using an approved processor then you will be set up with new payment processing services and the funding process will take an additional five business days. However, your new payment processor will match your current processing rates. In some cases, after evaluating your current payment processing statements, we may even be able to reduce your payment processing costs.
