Most small business owners would love to have additional capital to grow their company, such as expanding their space, purchasing new equipment, hiring additional employees or simply having cash on-hand for random expenses. What some small business owners may not realize is that instead of applying for a small business loan, a merchant cash advance may be better suited for their industry. Here are five things you need to know about merchant cash advances so that your small business can get the financing it needs to grow!
1. The payment schedule – Unlike small business loans, the payments for a merchant cash advance won’t be the same every day. Instead, they will be based on how much money your business makes in credit card sales. A fixed percentage of those sales will be taken out of your bank account to pay back the lender. Not only is it easy, it ensures that you can pay back an amount that your business is able to handle, that is based on how much you’re making at that time. For instance, if your sales are slow on a weekday night, you’ll be paying back the lender a set percentage of that amount, which will be smaller than the amount you’d be paying back on a weekend when credit card sales are booming.
2. What industries benefit from them – When it comes to merchant cash advances, some businesses in specific industries especially benefit from having one. Restaurants, retail stores and other businesses that make a large amount of their sales from credit card transactions will do well with a merchant cash advance. With the flexible structure, they may have additional revenue to spend on growing their business, but also can pay back their merchant cash advance in a reasonable amount of time.
3. How they differ from small business loans – When it comes to a merchant cash advance, when your revenue fluctuates, so will your payment amount. This differs from small business loans, which have set terms. The amount is paid back in installments, over a pre-determined term that is set by the lender. As we mentioned in the previous section, some industries that make a lot of money from credit card sales may prefer a merchant cash advance instead of a small business loan. Other industries, like construction companies, may be better suited for small business loans, if they do not accept credit cards as a form of payment. If you’re not sure which product your business should be pursing, make sure to discuss this with your lender prior to applying.
4. How to apply – Every lender is different, so when applying for a merchant cash advance, make sure to educate yourself on the lender you’re planning on using. Since merchant cash advances are paid back based on a business’s credit card sales, a lender will most likely have a required minimum monthly credit card sale amount. Many lenders also have different amounts that they’ll provide to small business owners seeking a merchant cash advance, so compare your options!
5. What to look for in a lender – Make sure you choose a lender that looks at your business’s finances and offers you an amount and set percentage that your business can realistically handle. A responsible, transparent lender will make sure you are comfortable with the merchant cash advance they are providing you with, so don’t settle!
By educating yourself on the ins and outs of merchant cash advances, your small business can apply and receive a merchant cash advance amount that will allow your business to flourish. At Fora Financial, we provide working capital to small businesses across the country.
If you’re interested in getting financing for your business, visit the Fora Financial website to find out about our personalized working capital options.
By Katie Alteri