It’s a fact that many small to medium-sized businesses have a difficult time obtaining the working capital they need to sustain themselves and to expand. In the correct situation, a merchant cash advance can be a good option for your company. Let’s assume you’re a small business in need of capital immediately. A merchant cash advance is one of your best options, so let’s find out a little more about them.
Merchant cash advances can help you out of a difficult situation, but you do need to exercise caution. They don’t come cheap, and the total annual cost once all the fees have been added in can be in the triple digits. If you’re not careful these payments, added to the daily repayments, can lead to cash flow difficulties.
How They Work?
If your business’s income comes mainly from card machine payments, whether debit or credit, then a merchant cash advance is ideal. Businesses such as restaurants and retail shops frequently take advantage of this type of loan, but they are also available to businesses whose income doesn’t come mainly from card machines.
If approved, Clear Skies Capital will transfer a lump sum into your account and you pay us back out of a percentage of your future sales. Repayment can be done in two ways.
We can either work with the card machine provider and take a percentage of your credit and debit card income before you even see it, or we can debit fixed daily or weekly amounts from your bank account. This second option means that even if your business doesn’t get many credit or debit card sales, you can still use a merchant cash advance.
The collateral for the advance is a slice of your future debit and credit card sales. This is taken off until the advance plus any fees have been paid back in full.
How Much Will It Cost?
We will work out a factor rate that is determined by how much you can repay. It usually ranges from between 1.1 and 1.5. The higher the factor, the more fees you’ll pay back. To calculate your total repayment amount, you’ll multiply the amount given to you as a cash advance by the factor rate.
For example, if you get a merchant cash advance for $30,000 and have a factor rate of 1.2, then your total repayment will be $36,000.
As with any other loan or advance, the longer you take to pay it back, the more expensive it will be. The payback term is usually short- between six months and one year. This means that around 10% of your credit and debit card sales will be used for repayments. You need to ensure that your business can sustain these repayments without running into cash flow problems.
Advantages of a Merchant Cash Advance
There are several benefits to getting a merchant cash advance through Clear Skies Capital. They are fast, and we usually approve your application within a few days. All we need to check is your business’s daily debit and credit card receipts.
They are simple. You won’t have to fill out piles of paperwork.
You won’t lose any personal assets. Merchant cash advances are not secured with any collateral. If you fail to repay because you have few sales for some reason, you will not lose anything.
In slow months with few sales, your repayments drop too. When it’s busy and your income rises, you will pay more. And the best part is that you don’t need a perfect credit score.
To sum up then, if you’re a business owner who needs cash fast, perhaps has a poor credit rating or no collateral apart from your business’s cash flow, a merchant cash advance is worth thinking about. Get in touch with us today and find out how we can help you with a custom merchant cash advance.