All About The Merchant Cash Advance
A merchant cash advance basically allows a small business to borrow money against its future sales. A provider in this kind of cash advance will expect a share of the future earnings of the small company in exchange for a lump sum amount that the business will use in operations or the like.
Many of the small businesses that are targeted by these particular lenders are service companies, restaurants, and even retail. This is due to the fact that these kinds of businesses often have high sales that involve credit card transactions.
The small businesses are also usually struggling because they are new or do not have good financial history to make them eligible for a regular bank loan. The merchant cash advance lenders will often charge very high interest rates on their loans that can reach annual percentage rates of up to 200 percent.
As the economy goes, this kind of cash advance may be highly risky for the borrower and very advantageous to the lender. In the United States there are still no regulations on limiting the interest rates on this kind of loan.
The concept of paying back the loan is simple: the payback period allows the lender to collect a percentage of the every day credit card sales up to a period of a year until the loan is paid off. This means that depending on the sales that the business makes, the lender will collect a percentage of that, which means that the amount often varies.
This is actually advantageous for the borrower because the loan payment amount will only be based on the cash flow that they have for the day. This means that they would not have to comply with an unmanageable fixed amount daily to remit back to the cash advance provider.
A regular loan from a bank would require the borrower to pay a set amount within a set period. With a merchant cash advance however, the biggest difference it has with a regular loan is that there is no set date for repayment and there is no fixed amount prescribed when payments are made.
Small businesses opt to have this kind of loan because they don't have to worry too much about repayment terms that they can't change. Instead, they are given the opportunity to pay back their merchant cash advance daily and still be able to operate within reasonable costs and resources.