Merchant cash advances can be used by businesses that accept credit cards as payment. If you run a business such as a grocery store, restaurant, or hardware shop and accept card payments, some merchant cash advance companies will lend you money based on your future credit card sales. The amount of the loan is typically equal to 50-80% of future credit card sales, and the repayment is deducted from future credit card receipts as a fixed percentage. This fixed percentage can be as low as 1% or as much as 10%.
What do merchant cash advance rates look like?
Rates for merchant cash advance tend to be higher than those of traditional bank loans at first glance. However, compare the rates to those of credit cards and they’re actually far more competitive, especially for smaller loans. Most business owners find that their monthly rate is 1-2% lower than it would be with a traditional credit card. Many times, keeping this cost below what you’d pay in interest on your current credit card balance can be very beneficial over time.
The repayment period for merchant cash advances is usually shorter than with traditional bank loans, but it varies greatly depending on the lender. Most lenders that offer merchant cash advances give you up to 12 months to repay your loan in full. The maximum term for most businesses is typically 24 months, though some merchants qualify for 36-month terms at higher rates.
How are merchant cash advance payments made?
Once you get a merchant cash advance, the repayment is typically deducted from your daily credit card sales at a fixed percentage. Some lenders allow you to choose the deduction rate, which will affect how much you repay per month and how quickly you can pay off your loan. You’ll be able to check the daily deduction amounts using your lender’s online portal.
What should I look for in a merchant cash advance provider?
When looking for a merchant cash advance lender, make sure you understand what fees you’ll have to pay upfront and on an ongoing basis. Lenders typically charge an origination fee which can be as much as 5% of the loan amount when you get an advance. They also typically charge a daily fee on your outstanding balance, regardless of how much you pay back each month.
What happens after I repay my merchant cash advance?
Once your business has completed repaying its merchant cash advance and there are no more deductions from future credit card sales, you’ll begin to see regular business income like you would with a traditional bank loan. If your business is successful and continues to grow, you may be able to refinance your merchant cash advance for additional funds or take out another type of loan with the lender down the road.
Do I need good credit to qualify for a merchant cash advance?
Typically, you’ll need a minimum credit score of 600 to qualify for merchant cash advances. However, this is not always the case. The lender’s underwriters will consider many factors when approving your deal, including how much money you make each month and the types of payments you typically receive. If your business is new or there are other factors that would make your deal riskier, it may be more difficult to get approved.
If you’d like to learn more about business loans or find out if a merchant cash advance is right for you, fill out our form and one of the lenders in our network will contact you.