5 Questions to Ask Before Accepting a Merchant Cash Advance Offer
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Due to this, we’ve compiled a list of five questions that you should ask before accepting a merchant cash advance offer.
Is a cash advance the best financing option for my business?
Not every financing product will fit a borrower’s needs, so ensure that a merchant cash advance will work for your business.
One of the main aspects to determine is how much your business receives in credit card transactions. Merchant cash advances work best for businesses that receive a high volume of credit card sales. This product is also beneficial for businesses that are highly cyclical and need cash to capitalize on busy seasons. If you don’t receive consistent credit card sales, it’ll be difficult for you to remit, and instead you might be better off applying for a different product.
Will I continue to receive significant credit card sales?
When you receive a merchant cash advance, you’ll fulfill your obligations through future credit card transactions. The rate at which you remit the balance slows down when the amount of credit card sales you make lessens, and vice versa. This is important because the longer it takes you to remit a merchant cash advance, the more interest you could have to pay.
That’s why you should know if you’ll continue to receive significant credit card sales. If you receive a high volume of credit card sales, a merchant cash advance could be a great fit for you.
Is the cash advance lump sum enough?
Most likely, you’re looking for a cash advance because you have bills to pay or investments to make. So, it doesn’t make much sense to pay half the bill, does it? That’s why you should be sure that the lump sum is enough.
Depending on the lender, the amount you’re eligible to receive may vary. It’s important to shop around, so if you’re unsure if the lump sum from your cash advance is enough, try talking to an alternate lender, or pursuing a different financing option.
Do I have expensive debt to pay off?
In the right situation, a merchant cash advance can be a great way to pay off expensive debt. With the cash advance, you receive a lump sum of cash which you can use to pay off any debt you’ve acquired. It’s important to consider how you’ll utilize a cash advance; if you don’t have debt, or another pressing need, you might not require a cash advance at this time.
What other loan products might be a fit?
When it comes to business financing, merchant cash advances occupy an important niche, but there are other options. If you’re considering merchant cash advances, taking out a line of credit or using a business credit card may make sense as well.
With a line of credit, you’ll receive an agreed upon sum of money which you can borrow from at any time, as long as you don’t exceed your limit. Credit and business history requirements are more stringent for a line of credit compared to a merchant cash advance, but it’s a viable option for some business owners. Similarly, business credit cards can provide an infusion of short-term capital, although carrying a large balance can become expensive, and you could risk accruing significant debt.
As with any type of business financing, you should be vigilant in asking deep questions before signing on the dotted line. And it’s not just questions for your lender; you must also ask yourself questions about your financial situation and your business needs.
With a merchant cash advance, the need to ask questions goes double. Under the right circumstances, a merchant cash advance is a powerful tool that can propel your business to new heights.
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.