Robert Trosten a merchant cash advance, as the name suggests, is a loan availed by a merchant against future sales. This mode of finance is extend only to businesses with a steady. And the healthy volume of credit card sales, typically retail stores, medical clinics, restaurants, etc. Since the cash advance is against future sales, there is lesser dependence on complicated documentation and credit checks. And the payout can be made immediately on request.
The Mechanics of Merchant Cash Advance
For merchants applying for a cash advance for the first time, documentation required by the financier. Will typically be proof of identity, tax returns of the business, bank statements, and credit card statements. Having a good credit score helps in getting more cash advance. While the amount of the advance depends. On the volume of credit card sales, it has to be paid back relatively quickly, typically within 12 months, according to Forbes. The percentage of sales extended as cash advance depends on the lending policy of the financiers.
Typically, the factor rate is between 1.2 and 1.4, which means that for a $10,000 merchant cash advance, the repayment amount will be between $12,000 and $14,000. When calculated on an APR basis, merchant cash advances. Work out more expensive than conventional loans. However, the method remains popular due to its quick processing time and low eligibility barriers, observes Robert Trosten.
Benefits of Merchant Cash Advances
One of the most important benefits of an MCA is that the application process is easy, and the merchant can get the money with a day or two. If the merchant has a history of good credit card sales, getting an MCA is relatively painless without the credit history coming under scrutiny. Further, the merchant does not have to provide any collateral for the advance as these loans are unsecured. Another feature of an MCA that businesses. I Will appreciate it that they can use the money for any purpose they want. Even in case, sales dip for a few days, retailers need not come under pressure. If the repayment is pegged as a percentage of daily or weekly sales.
Cons of MCAs, According to Robert Trosten
When compared to conventional bank loans for working capital, merchant cash advances work out to be far more expensive. Businesses do not stand to gain by paying off the advance quickly. One of the biggest issues of taking an MCA is that a large portion of the daily sales revenue will be reserved. For the repayment. It means that the cash flow can come under pressure. And the business may not be able to spend much for expansion.
Merchant cash advances can be very handy for businesses making a lot of credit card sales when they need money quickly and for the short term. With the cost of these loans being high, merchants will need to exercise caution and exhaust other means of financing before applying for an MCA.