One of the most trivial task as an entrepreneur is seeking business funding. Typically, people would go to the banks or turn to family and friends. Some turn to credit cards for business funding.
What we are going to talk about in this article is how an alternative business funding methods, such as merchant loans or merchant cash advance, can get your business up and running in no time.
Popular among retailers that don’t qualify for regular bank loans, merchant cash advance can help your retail store to get started quickly – if you do it right.
But first thing first: What is merchant cash advance?
In essence, merchant cash advance refers to a fund made available to a business in exchange for a percentage of future credit card and/or debit card sales. The percentage is agreed upon by both parties.
The biggest upside of merchant cash advance is the simplicity and speed of the application process, useful for businesses that need cash quickly for business purposes (we will talk about them later – read on…)
Here’s a rather simplistic example of how merchant cash advance works… suppose you require $10,000 in cash for your business purposes; in return, a merchant loan company would require you to pay back for the amount of $12,500. The merchant loan company then collects the $12,500 from you in parts, typically 5-10% of your business credit card and/or debit card sale – until all of the $12,500 is collected.
Why business owners need such loans?
There are many reasons why business owners want quick cash – typically, they need cash to secure stocks in supporting surge of demands or in financial troubles need cash to stay afloat.
If your reason is the former, then merchant cash advances can be great help; if your reason is the later, then you should avoid merchant loans – even all kinds of loans – at all cost.
But the interest rate is really high – almost scam-like!
Indeed, many businessmen squirm at the idea of taking merchant cash advance due to the high interest rate. What’s more, such high interest rates had put spotlights on merchant loan companies, accusing them practicing predatory lending.
However, as I mentioned above, the interest rate is agreed upon, meaning you should knew – and agreed – beforehand regarding the interest rate figures. With that being said, you need to do your diligence, especially in determining whether cash advances is the best possible option for your business – before you actually take such loan.
So, there you go – some basic things you need to understand about merchant loans or merchant cash service. One word of advice: Please seek help and look for resources to help you make a well-informed decision.