While most small business will go directly to the bank or a corporate lender for traditional loan options, some don’t have the time or credit score to do so. After a lengthy application process, you need to qualify before getting the funds that you need, therefore, for many, a merchant cash advance is an appealing and timely option.
While the term itself is still relatively foreign to many businesses, the industry is actually growing at a rapid pace. According to GetEntrepreneurial.com, “Merchant cash advance transactions are big business. In the past few years, the industry has grown from a few providers to what some predict will be an almost 10billion dollar industry.” However, before requesting your funds, be sure you know the three most important factors.
1. Consider What You Need
While a cash advance is perfect for an emergency situation - it’s fast and easy - it may not be ideal for furnishing your entire office. Nevertheless, if you’re struggling with bad credit while building your dream business, it may be a good option.
- Prioritize your needs: It’s smart to condense what you want and take only as much money as you absolutely need; you are promising a chunk of your future profits for the cash you receive.
2. Evaluate the Repayment Plan
A cash advance is much different from a standard loan; your credit score isn’t considered, the process can all happen within an hour, and there are no qualification factors. However, although you don’t need to “qualify” with the company, you should be positive that your finances do in fact qualify for the repayment plan; that you will feasibly be able to pay this back via your future credit card sales.
- Create your financial timeline: What is the repayment time period? You’ll need time to figure out whether the repayment period is realistic for your small business.
- Refer to your business plan: How will this then affect your original business plan? From investor interests to paying off other loans, you want to be sure you’ll still be on track, or can modify the original plan.
3. Actually Read the Contract
Although, as a small business owner, you may be signing any number of papers a day, this is one to pay attention to. Not only do you want to read and re-read the contract, you want to pay close attention to the service agreement as well. This is where the payment plan, other charges, and basic, agreed-upon terms will be spelled out. Be sure that you understand each aspect, but look for two specific areas.
- Post signing fees: Startup Nation suggests that some companies will charge if you switch to a different credit card processing company, get new credit card equipment, etc. Other potential fees can include UCC filing and service fees.
- Interest rates: Compared to a loan, are you paying similar interest rates? While a loan may not be possible at this point, you still want to be sure you’re not getting a bad deal.
Taking a cash advance is a great way to finance a small business that is falling short on getting a traditional loan. However, be sure to check the details and know the contract before penning a final signature.
Bio: Jessica Sanders is an avid small business writer touching on topics that range from social media to credit card processing and debt management. She is a professional blogger and web content writer for ResourceNation.com.