Small businesses looking for working capital often have to look to many sources to find all they need. One possible solution for cashstrapped companied could be a merchant cash advance loan. With these loans, borrowers can receive a lump sum of money, which is then repaid from future credit card sales. While a cash advance loan can be very helpful, entrepreneurs need to consider all the risks as well.
Merchant cash advance loan credit standards are very minimal. Businesses do not have to have been operating very long or have stellar credit. Lenders will typically want to see some basic financial information including how much the firm has made in credit card sales over the past three to six months. With such loose requirements, most businesses can qualify.
These loans are typically doled out within a week of application and sometimes within 48 hours of approval. That definitely beats the months it can take to get a traditional bank loan.
Unlike with most other types of loans, there is no stressful minimum payment amount to repay each month because the lender simply takes a portion of each of the company’s credit card transactions.
Most bank loans require substantial collateral, but merchant cash advance requires nothing more than proof that there have been enough credit card sales to warrant the loan.
There are very high fees association with cash advance loans. Lenders may take up to 25 percent of each credit card sale, with annual percentage rates coming to anywhere between 6.0 percent and 20.0 percent. Borrowers should clearly understand what they are giving up before signing.
The merchant cash advance loan category is not as well regulated by the government as traditional bank loans. There may be less recourse if the loan goes sour or there are shady circumstances.
In order to make sure they get their money bank, lenders may make some restrictive stipulations on businesses. These could include things like not giving discounts to cashpaying customers, not being able to change locations or take out additional business loans until the debt is repaid.