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When to Take Out a Merchant Cash Advance

Henry Githinji

Henry Githinji

Henry plans to be an entrepreneur with his own financial consultancy firm, specializing in in binary options and stock trading. Henry is a day trader and plans to use the capital he makes to launch his business. He plans to build a portfolio that attracts investors through his trading performance.
Henry Githinji

When to Take Out a Merchant Cash Advance



Many people think merchant cash advances are business loans for small businesses. They are really cash advances based on the credit card sales of a business. When a small business qualifies for a merchant cash advance, the loan amount is directly deposited into its bank account within a very short period of time.

The advantages of merchant cash advances

Many small businesses can benefit from a merchant cash advance no matter how successful they may seem to be. The cash is mostly used during the startup phase or in future business expansions. Merchant cash advances also come in handy if your business has suddenly run out of inventories or when a very good business opportunity has presented itself. You need quick cash. However, if you have a bad credit history, it’s impossible to acquire a small business loan.

Merchant cash advances are not a good borrowing option when your small business has cash flow problems. This is because, in the long run, you end up paying more for faster access to capital as the borrowing cost of merchant cash advances are very high. However, there are various reasons why business people opt for merchant cash advances:

  • Collateral is not required. To qualify for the cash advance, your business only needs to have strong credit card sales.
  • Approval for merchant cash advances is fast. The application is very easy and you are able to access the cash in just two days. Bank statements and credit card receipts are all that you need for the application. This means that there will be no time-consuming paperwork to slow down the approval. The application process for merchant cash advances is quite different from the one when applying for small business loans with the bank.
  • Repayment amounts are low when your sales are low. The repayment schedule is based on a fixed percentage of your daily business transactions. Therefore, repayment amounts are adjusted based on how your business is doing. You don’t have to worry about repayment if your sales are low because you will also be repaying in smaller amounts.
  • Merchant cash advances have high approval rates. It is not like a business loan with a bank where there is a high rejection rate. Merchant cash advances are exceptions since they have a high approval rate.This means there is a higher chance of being able to secure the business capital you need.

    need of quick cash

Though there may be several advantages with merchant cash advances, they are not without disadvantages.

  • They are only short-term solutions which may not solve your financial problems in the long run.
  • They are expensive to borrow. As mentioned earlier, their interest rates are much higher than normal business loans. Depending on the company offering the merchant cash advances, there are also extra fees to pay.

Bottom line

When in need of quick cash for your business, first decide how you are going to use the money and consider how long the loan amount will last you. It is also important that you don’t rush into getting merchant cash advances which command high-interest rates.


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