Merchant cash loans are a form of working capital or liquidity that small businesses can fund operations. They fall into two basic categories: Merchant Cash Advances and Merchant Loans.
- Merchant cash advance companies extend credit to small businesses by advancing funds based on the business’s anticipated future sales. Suppose a business is approved for a merchant cash advance; in that case, it means that the merchant cash advance company believes you will be successful in making sales, generating the revenue necessary to pay back the loan.
- Merchant cash loans are extended by merchant services providers, which means that merchants must have an active merchant account with that provider. A merchant takes out a loan for a set period; often, it is repaid via their merchant account or through other future credit card sales.
These two categories are not to be confused with one another.
Merchant Cash Advance Programs:
How Do Merchant Cash Loans Work?
Small businesses looking to acquire merchant cash loans will fill out an application on the merchant’s website. They will review the information, assess their creditworthiness and give borrowers an offer within 24 hours. They’ll then deposit some funds into your bank account (usually $500-$5,000) within four days of signing your loan.
The lender then deducts a “loan-processing fee” from the funds, leaving you with your merchant cash advance. The merchant cash loan money might be in your account within 24 hours of signing up for an installment loan.
You will typically repay the merchant’s cash advance over several months via their merchant account.
Benefits of Merchant Cash Loan
Merchant cash loans are an excellent option for small business owners who need short-term funding to help run their businesses. For this financial process, you sell your future credit card sales receipts to a merchant cash advance company in return for immediate payment. This allows you to get the working capital you need without having to wait around while it accumulates.
There are several benefits merchant cash loans provide small business owners. Some of these include:
Fast funding — These loans are rapid. Cash advance companies can often provide you with a decision on your merchant cash loan in as little as 24 hours.
Predictable — These loans tend to be more predictable than other short-term funding options such as factoring and invoice financing, making them an excellent option for business owners who need to protect their cash flow.
Less expensive — These loans tend to be less expensive than other short-term funding options on the market, which can save you money in the long run.
Flexible — These loans provide business owners with the opportunity to choose the repayment terms that work for them.
5 Things to Know About Merchant Cash Loans
Merchant cash loans for small businesses have been on the rise. As a result, cash loan companies have popped up to take advantage of this demand. But will merchant cash loans help your business? Here are five things you should know about them before signing up:
1. Merchant Cash Loans have one purpose
Some point out these loans might seem like a “get rich quick” scheme. However, do not forget these loans have a purpose. With these loans, the amount is paid back with additional fees, so most lenders do not typically consider it as an investment. When you take out a loan, the money should go toward growing your business or allowing you to continue operations without having to close up shop. If you are looking to make a large purchase for your business, look elsewhere.
2. These Loans are Short-Term
The vast majority of cash loans are repaid for months, not years. This means that you should only take out a cash advance if you have immediate needs or help get your business over a challenging period. You will specify the repayment terms in advance, and typically, you will be given an installment schedule to follow when repaying your merchant cash loan.
3. Your Documentation Matters
You must provide documentation. Once approved, you’ll receive the money from the merchant advance company in 1-4 days. For this process to go smoothly, you’ll need to have all of your documentation in order. This includes business licenses, background checks, and monthly/ bi-weekly financial statements.
4. Be careful with Early Repayment
Repayment terms for merchant cash loans are typically the same as on the credit card machine. However, it is possible to pay off your merchant cash loan early in some cases. If this happens, you may have to pay a fee, leading to additional expenses for your business.
5. You Will Need Good Credit
Most of the time, you’ll need a good credit score to qualify for a merchant cash advance most of the time. They tend to be best suited for businesses operating successfully for over a year. If you have less than 12 months of history as a business, it is less likely a company will want to work with you.
Merchant cash loans are a rapidly growing industry. These days, more and more small businesses are turning to merchant cash loans to get money to meet their needs quickly. As a result, many fraudsters out there have jumped on the bandwagon, taking advantage of business owners by offering cash advances with hidden costs and low approval rates.
How Corporate Capital Direct Can Help
To avoid becoming a victim of one of these scams, it is vital that you only work with an established merchant cash advance company. This will ensure that you get the proper support for your future business endeavors. Are you looking to take a merchant cash loan? If so, head over to Corporate Capital Direct and schedule a meeting with our experts. We’ll help you learn more about cash advances and how they can benefit.