A merchant cash advance is a lump sum provided by a lender to a business. New businesses tend to use a merchant cash advance more often, as they are easier to receive than traditional business credit. However, a merchant cash advance can also be used to keep established businesses going during a slow season or an economic downturn. The merchant account industry has only been in existence for the past few years. It appears to be a response to the declining number of credit providers willing to loan money to small businesses.
A business owner who is specifically interested in a merchant cash advance needs to locate a company that offers this type of loan. If the business owner applied for a loan with a bank and was turned down, the business banker may be able to refer him or her to a merchant cash advance provider. The business owner can also search online until locating a company that meets his or her needs for business capital. One advantage of completing an application online is that the business doesn't have to be geographically located near the lender. This may be especially helpful for businesses that are located in a small town and have few financial resources locally.
After receiving a loan from a merchant cash advance provider, the business owner enters into a contract for repayment. Typically, this takes place over the course of one year in the form of credit and debit card receipts. Loan payments are automatically deducted from gross receipts and redirected to the merchant cash advance provider. Businesses that anticipate seasonal slowdowns may be able to come to an agreement about not having payments deducted during that time.
New businesses and those with poor credit or little collateral may benefit more from a merchant cash advance than other types of businesses. They are often a last solution for businesses to get the operating capital or start-up funds that they need to grow the business. Due to the increased risk taken on by the lender, companies that take advantage of a merchant cash advance can expect to pay a higher rate of interest than other loan types. Business owners who are interested in a possible merchant cash advance are encouraged to look at several different providers before submitting an application. This helps to ensure getting the lowest interest rate and most favorable terms possible.