Choose The Right Merchant Cash Advance For Your Business

Choose The Right Merchant Cash Advance For Your Business

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Its gotten a lot tougher to own a small business these days. The lifeblood of small business is capital And raising funds is almost impossible for many companies. Forget going to the bank unless you have perfect credit. The current bank bailout crisis has shut down almost every kind of small business loan.

Fortunately there is a workable solution with a fairly new nonbank funding strategy: Merchant Cash Advances. The good news is any business that takes credit cards on a regular basis can qualify for a merchant cash advance fairly easily. The bad news is cash advances dont come cheap. Unfortunately, the bottom line for most small companies is clear. Business cash advances are the only hope of keeping their doors open or expanding.

Entrepreneurs are a persistent bunch. Most will find a way to tighten their belts and pay back these higher cost sources of funds. This type of funding was introduced in 2001 after the dotcom bubble came to a somewhat nasty end.

What exactly is a Merchant Cash Advance?
The key point to remember when considering a cash advance is the funds you receive are NOT a loan. Specifically, the funding source is buying a discounted percentage of your future credit card sales.

There is no fixed monthly repayment amount. You, the business owner agree to pay back a set percentage or holdback of all your credit card sales until the funder gets his money back plus a pre-determined profit. If your credit card sales go down your repayment amount goes down.

Here is how it works. Lets say you average $20,000 per month in Visa and Mastercard sales. You decide to buy extra inventory for the holiday season and you need $25,000. You submit your application and your most recent credit card and bank account statements.

The funder agrees to give you the $25,000 after setting up a 23% holdback or reserve on all future credit card sales through your merchant processing account (until repaid). The holdback percentage will typically vary from as low as a few percent up to 25% (or more) based on several factors. The amount you request compared to your gross monthly sales, your credit, the seasonality of your business and other variables will all be analyzed before the funder will set the final holdback.

Credit is a part of the underwriting process, but only one factor in the decision process. Even applicants with FICA scores below 500 and recently discharged bankruptcies can often be funded. The funding amount and repayment terms will be established before you sign any final documents.

The most important term for any business owner is the rate factor. This tells you how much you have to repay the funder. Typically, you will see rate factors from 1.30 to 1.50 times the amount you receive. That means if you get $25,000 you will pay back between $32,500 to $37,500. The rate factor will be based on risk, length of time till expected payback and individual funding company underwriting guidelines.

Fortunately there is a funding source of last resort for small businesses in this economic crisis. Once you decide to use a cash advance check out the best rates and terms before you sign on the bottom line. Finally, get all your questions answered so you understand all the fine print.

About the Author:
Roger & Bev Nevard are financial strategy and capital raising specialists. To discover the 7 key insider tips to getting the right merchant cash advance go to www.MerchantCashAdvanceASAP.com



Article Originally Published On: http://www.articlesnatch.com


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