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Merchant Cash Advance: What is it and How does it Work?

For small businesses, funding can be a tricky affair, especially when they find themselves in dire need of cash. That’s where merchant cash advance comes in as a convenient way to get quick cash for businesses. In this article, we’ll discuss what merchant cash advance is, how it works, and how it differs from traditional business loans.

What is Merchant Cash Advance?

Merchant cash advance is a financing option for small businesses that need quick cash but don’t qualify for traditional business loans. It’s a type of funding that allows businesses to borrow money against their future sales, which is paid back through a percentage of their daily credit card sales.

The process of getting merchant cash advance is simple and hassle-free. Businesses can apply for merchant cash advance from a lender or a financing company that specializes in providing such loans. The lender evaluates the business and its sales to determine the amount of cash that can be advanced to the business.

Merchant cash advance is typically a short-term loan with high-interest rates, and businesses must pay back the loan in a relatively short period. This makes it unsuitable for long-term financing needs.

How does Merchant Cash Advance Work?

Merchant cash advance works by giving businesses quick access to cash based on their future credit card sales. It’s a cash advance loan that is repaid by the business through a percentage of their daily sales. The lender and the business agree on a percentage that the lender will take from the business’ daily sales and set up a payment system.

Here’s an example: If a lender gives a business $50,000 in merchant cash advance, they might agree to take 10% of the business’ daily credit card sales until the loan is paid back. If the business makes $10,000 in credit card sales in a day, the lender will take $1,000, and the business will keep $9,000.

The payment process continues until the loan and interest charges are paid off in full. The repayment period for merchant cash advance can range from a few weeks to several months, depending on the amount borrowed and the agreed-upon percentage of daily sales.

How Merchant Cash Advance Differs from Traditional Business Loans

Merchant cash advance differs from traditional business loans in several ways:

The Pros and Cons of Merchant Cash Advance

Like any financing option, merchant cash advance has its advantages and disadvantages:

Pros:

Cons:

Conclusion

Merchant cash advance is a suitable financing option for businesses that need quick cash but don’t qualify for traditional business loans. It’s an unsecured loan that is payable through a percentage of daily credit card sales. Although it has high-interest rates and a short repayment period, it’s an excellent option for businesses that need cash urgently and have limited financial history.

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