A merchant advance offers funds to owners of small businesses in exchange for a set percentage of the company’s income (mainly credit card sales) over time. Payments are usually made automatically every day, utilizing a percentage of the daily credit card revenue. The total repayment amount is calculated by using a “factor rate,” which is a multiplier tool used and based on the company’s financial status.

A merchant cash loan is a speedy and easy way of obtaining funding instantly. The application process, however, can be tricky and is typically completed within one or two days. The approval rate is high, and funding is obtainable within a day or two. Also, unlike conventional business loans, a Merchant Cash Advance does not call for collateral. 

Owners of small businesses should take into consideration that one of the paramount disadvantages of applying for a merchant advance is that they are more costly than your ordinary small business loan. They are charged at twenty to fifty percent more than the principal loan amount. Furthermore, due to the fact that merchant loan advances are viewed as a commercial transaction and not a loan, federal oversight is non-existent in respect of regulations and enforcement. With a lack of federal oversight, there is no inspection and federal action against predatory lending practices. It is vital that a small business owner assess and contemplate whether they are, in fact in need of a merchant cash enhancement and are in the position to afford it.

Qualifying for such an advance is not difficult. Most suppliers offer an easy online application process with quick completion results. With an application for a traditional business loan, the applicant must have several years of operational experience to qualify for the loan, which is not the case with a merchant advance. A prolonged operational history, as well as a healthy credit score, can assist an applicant in obtaining approving payment terms, but for businesses, with a brief operating history and an unfavorable credit, it doesn’t necessarily mean that they will be precluded. One consideration that suppliers are closely assessing is whether the applicant has an unswerving high sales volume. Although there is not a specified figure, most suppliers will give an advance of seventy-five to two hundred and fifty percent of the company’s monthly sales volume.

If your company wasn’t approved for the merchant cash encroachment, don’t feel discouraged because you are one of many. Many merchant cash lenders analyze all applications very carefully. They generally take your overall monthly sales numbers, credit card transaction, and other financial factors into consideration. In the event of you not meeting the specific criteria, you will unfortunately not be approved for a merchant cash loan. While this type of loan is an excelling source of funding, there are other options that you can explore, and nothing stops you from applying again later.