Merchant cash advances for business financing

If you run a business, you will be well aware of the fact that you need some serious capital in order to not only stay afloat, but be successful. We take a look at how cash advances could help you.

Sometimes it can be difficult to find financing, particularly if you’re a small business that hasn’t had a chance to establish itself yet. But with your success so reliant on capital and financing, what options do you have?

Merchant cash advances can be an excellent means of acquiring the capital you need to ensure consistent cash flow, but is your business a good candidate for this type of financing? What criteria does your business need to meet in order to be able to use a merchant cash advance? And what can you use it for?

There is a great guide provided by Merchant Cash Express that explains in more detail, but lets cover a few key items below.

What criteria do you need to meet?

Qualify as a small to medium business

In order to benefit from a lot of financing options, you need to qualify as a small to medium business. It is well-known that small businesses are in the most need of money, precisely because it’s so essential in helping lift a company off the ground and maintain it while it takes off. The first two years of a business are crucial.

As long as you have a small business that needs help, you should be good to go for applying for merchant cash advances, but of course, there are other criteria to take into consideration, as well.

Operate transactions with credit cards and debit cards for at least 12 months

The second requirement is that your business carry out transactions with credit cards and debit cards. This aspect is absolutely essential, because of the way you repay the loan. You see, you will not be repaying in fixed instalments, like a regular loan.

Instead, the money will be repaid only from income from credit card and debit card transactions. Every day, a small (fixed) percentage will be automatically withdrawn from the day’s sales.

This percentage remains the same, regardless of the value of the sales, so on some days you will repay more, and on some days less.

Because of this arrangement, when you apply, you need to provide the lender with at least 12 months’ worth of credit card and debit card transaction history in order to establish how much you stand to make and what your projected income will be. That will determine how much you can borrow.

Make a minimum amount of money from these transactions

But you don’t get away with simply making these transactions, you actually need to make a minimum amount in order to be approved for this kind of financing. The amount will vary depending on the lender, but you need to have a minimum amount of income generated exclusively from credit card and debit card transactions because this where you will be making the repayments from.

Since any good lender will ensure affordability, it is important that your business meets this criteria in order to be eligible for financing without running into issues further down the line.

Related: Is your business a good candidate for a merchant cash advance?

What can you use it for?

Ok, but even if you’re eligible for the loan, can it actually help with what you need? What can you use a merchant cash advance for?

Covering emergencies

One exceptional use for merchant cash advances is to cover any emergency financial situations that may arise. A small business probably will not have emergencies covered in their normal budget, but anything can happen.

For example, you may lose stock for one reason or another, or a shipment may be late and you need to cover for it in some way. Perhaps some employees quit with no notice and you need to hire temps to take their place on the fly.

Any number of things can happen that require you to pay out of pocket, and fortunately, a merchant cash advance is a viable financing solution for this type of unexpected situation.

Buying assets

In order for a business to expand, grow, and thrive, you will need to invest from time to time. Asset buying is part of the deal, but it may not always be part of the budget. However, if the perfect opportunity arises for the perfect space, or some snazzy new furniture, some better tools, or a set of state-of-the-art appliances, you need to take advantage of the situation and purchase them on the spot.

Without money of your own, a merchant cash advance can save the day by providing you with the money you need to buy the assets.

Supplementing stock

It doesn’t need to be said that stock is supremely important in a business – after all, it’s the very foundation your business is built upon. You need it to sell your product or perform whatever service your business offers to the public.

But if you unexpectedly run into a need for more stock, either because you’ve had a massive influx of orders, purchases, or the old stock became unusable for any reason, you need to be able to step up and manage this situation quickly and effectively. A merchant cash advance can help you supplement your stock and continue to carry out your business as usual.

Summary

All in all, merchant cash advances can be the perfect financing solution for a lot of different businesses, should they be in need of capital.

However, like with any other financing option out there, you need to first check if your business fits the criteria. Does it meet all the requirements to receive this type of funding? And more importantly, do merchant cash advances meet your needs, as a business, and can you use them to your advantage?

Further reading on cash advances

Owen Gough, SmallBusiness UK

Freddie Halvorson

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

Related Topics

Business Finance
Cash Flow

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