4 Ways to Use a Merchant Cash Advance | Fora Financial Blog
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4 Ways to Use a Merchant Cash Advance
December 14, 2017
5 ways to use a merchant cash advance

4 Ways to Use a Merchant Cash Advance

December 14, 2017
Don’t know how to use a merchant cash advance? You’re not alone. Merchant cash advances are a little-known and often misunderstood financing option for small business owners.

After receiving merchant funding, you receive a lump sum amount, and financing that you remit with a percentage, known as a retrieval rate, of your future credit card revenues. This type of financing is best for businesses who need a fast transfusion of capital, especially if they lack collateral, excellent personal or business credit, or limited business history to qualify for more traditional avenues.

If your business needs to borrow a large sum of money, most lenders will require collateral, even if you have an excellent credit score. Merchant cash advances are backed by future revenues, which acts as your collateral. Overall, this product is best suited for businesses that primarily accept credit cards.

In this post, we’ll list four ways that business owners utilize their merchant cash advances.

Additional Cash Flow

When running a business, there might be times that you don’t have enough cash flow to afford all your expenses. For example, perhaps a customer has 30 days to pay their bill, but your employees are expecting a paycheck by the end of the week. A merchant cash advance offers a temporary cash infusion that you can get quickly to cover short-term operating expenses.

Cover Unexpected Payments

There are many reasons a business owner might choose a merchant cash advance over a traditional loan. One benefit is a shorter application process and time to funding. If you need cash within a few days to cover an unexpected lump sum expense – an emergency repair, for example – there is essentially no faster way to borrow the money than a merchant cash advance.

Purchase Inventory

Businesses that regularly make credit card sales, such as restaurants and retailers, may use a merchant cash advance to purchase inventory and remit it with a percentage of the money made from selling it. In this situation, it makes less sense to consider financing cost on an absolute basis. The merchant cash advance enables the business to sell, and profit from, inventory that they would not have otherwise.

Use for Seasonal Costs

If your business has a particularly busy season, get a merchant cash advance prior to this. That way, you’ll have financing on-hand for whatever your needs are. For instance, if your retail business makes most of your sales around the holidays, invest in extra inventory, hiring additional employees, and other necessary costs. If you run a seasonal business, or simply have a few months where you typically make a big chunk of your sales, use merchant funding to achieve your goals!

Conclusion

Make sure you understand how to use a merchant cash advance before you proceed. If you choose a merchant cash advance instead of a traditional term loan, you will be paying more for the convenience of faster access to capital. It’s important that you understand when your business needs this type of financing and if the cost outweighs the return on investment from the money you borrow.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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