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Is Merchant Cash Advance a Good Idea for Your Business?

Claire JamesDecember 8, 2022537 Comments02.3k

As a business owner, there will come a time where you’ll be considering different finance solutions, in order to purchase business equipment or cover temporary cash flow issues. It’s not uncommon for small businesses to have cash flow problems – they usually happen when general business expenses exceed the amount of funds you currently have access to.

As we have entered a cost of living crisis, consumer behaviour has drastically changed and many company sales are slow, since a lot of customers are falling behind on payments. Poor cash flow can negatively impact your start-up business, because you are unable to invest and get back to normal daily operations.

The cause might be slow sales or customers falling behind on payments. Poor cash flow hurts your ability to invest in your business and might severely affect your daily operations.

Would merchant cash advance (MCA) loans be an effective solution to this issue? The short answer is yes: a merchant cash advance loan is a good idea for your business if you’re looking to receive a funding solution fast, in order to cover short-term expenses.

But let’s take a closer look at how this type of financing works and how you can
benefit from it.

What is a merchant cash advance?

A merchant cash advance is defined as a financing solution that enables your business to cover temporary cash flow issues. Your business will get a one-time payment and then repay the loan by using a percentage of your sales.

It’s important to note that a merchant cash advance would suit your business needs if you process a high number of credit card transactions and you are in need of fast cash solutions. If this isn’t the case for your business, then MCA won’t be as beneficial.

How does a merchant cash advance loan work?

This is usually a quick process, since the amount you’re approved for will be based on the total number of your daily credit card transactions and the general financial strength of your business. One thing to keep in mind before applying is that repayments occur shortly after you’ve received the loan.

The benefits of merchant cash advance

If you don’t want to get involved with traditional bank loans and need something faster, this could be a great solution to your cash flow problems. Unlike bank loans, you wouldn’t have to worry about showing years worth of business history.

Typically, you need to maintain a good credit score and present the last few months of your business transactions. However, you’d need to discuss this further with your finance broker and get more specific advice on how to proceed.

Also, this type of funding can be used for anything – so there are no requirements for how you spend the amount you receive from the lender.

What information do you need to present when you apply?

When you complete the application for a merchant cash advance, you’ll need to
present the following information about your business:
● Proof of identity
● Contact information
● The amount you want to borrow
● Company information
● Bank and credit card processing statements
● Business tax returns