A merchant advance represents a financial arrangement where you receive a consolidated sum of money that is subsequently repaid through your payment processor. The repayment process involves a predetermined percentage being extracted from your daily credit card sales. Essentially, you're utilizing your upcoming receivables by selling them at a reduced value to the funding entity. This arrangement can offer quick access to capital, particularly useful for businesses with fluctuating cash flows. By opting for this method, you're essentially trading future sales for immediate funds, allowing you to address immediate financial needs. The appeal lies in its simplicity and convenience, as repayment is directly tied to your sales performance.
Repaying a merchant advance via credit card sales can impact cash flow more compared to a term loan. The payments are more frequent and tied to sales volume, limiting early payoff flexibility due to a fixed payback structure. Merchant advances commence at a 1.09 factor rate, with cost hinging largely on the funder's monthly share of your future receivables.
For businesses that make a big portion of their revenue through credit card sales, they can use a merchant advance as a short-term funding tool. Instead of a loan with set payments, a merchant advance fluctuates with your business' daily sales, so you pay more when business is good and less when it's slow. Seasonality is a big factor in considering taking a merchant advance.
If your resources are scarce, such as having little to no collateral or facing limitations in credit, even with low credit scores, and if your urgency is to secure swift funds within the next few days, merchant advances emerge as a highly favorable option. This is because they often boast uncomplicated approval criteria. Notably, businesses that maintain a consistent inflow of revenue through credit card transactions are prime candidates for securing a merchant advance. This financing avenue can effectively cater to your immediate financial needs while accommodating circumstances that might not align with traditional loan prerequisites.
