Loans and merchant cash advances for small and medium-sized enterprises

Merchant cash advances are a great financing option for businesses, looking for these innovations. In short, a cash advance for a merchant is a monetary loan in exchange for future profits. Take the example of a small grocery store. Say a week, you do not have the money to pay your suppliers. One of the solutions to the problem would then be the cash advance for the merchants. By receiving the necessary amount of money from the creditor, you agree to give it a certain percentage of your future profits. For example, you could offer him 20% of the next profits in exchange for the loan. This means that 20% of each transaction made by debit card or credit card will go directly into the creditor’s pockets until the debt is repaid in full.

How does it work?

In order to get a cash advance, the business simply has to go through an application process. During this process, the company will have to declare the amount requested and also the current revenues. Based on these two data, the creditor will decide on the amount he will offer in the form of a loan and the percentage that will be applied to future income. The company then has to accept or reject the proposal. If the terms are accepted, the company is given a sum of money to keep the business running smoothly.

A merchant cash advance may look similar to a bank loan, but be aware that there are differences. Unlike bank loans, cash advances do not have fixed interest rates and financing is unsecured. What does that mean? It simply means that in case of bankruptcy the creditor can not get his money. Cash advances represent a great risk for the creditor, which justifies the high-interest rates charged.

Advantages

The biggest advantage of cash advances is the speed of the process. Unlike bank lending, which can take months, cash advances are often approved within a few business days. This is the ideal option for companies looking for immediate financing. Well-managed companies can, in fact, benefit from these cash advances and increase their profits accordingly.

Also, unlike banks, the payment of cash advances is much more flexible than the payment of a bank loan. The payment, in fact, is based on the sales percentage of the business. For example, if the company had a lot of sales in July, a percentage of those sales will go to the creditor. However, if the company makes almost no sales in August, it will lose only a certain percentage of these sales. Instead of paying a fixed amount monthly, the loan payment is based on the number of sales.

disadvantages

Since cash advances are not legally considered bank loans, they do not enjoy the same legal protection that banks offer when they agree to make a loan. Because of this, interest on cash advances is higher. Finally, the cash advance industry is non-regularized, which means that you have to choose the creditor wisely.