Credit Card Processing Blog

Smart Ways to Grow Your Business with a Merchant Cash Advance

Oct 28, 2016 08:00 AM / by Reliance Star


There comes a time in the life of just about any business when the current cash flow just isn’t quite enough to cover necessary expenses. It could be that your business is planning a holiday event that, while it will generate a lot of income, will also cost a fair bit of money to produce. Perhaps your restaurant just received a massive catering order and you don’t have enough spare cash to cover the ingredients needed to fulfill the order. In other cases, your retail business might be seasonal and you have difficulty paying bills during the slower months. Whatever the case may be, your business needs an influx of cash right now.

Evaluate Your Options

As an entrepreneur, there are a number of ways that your business can bring in extra cash temporarily. You can opt to use your company credit card, but your limit may not provide enough money. You are also likely to get stuck with high interest rates when repaying the money. You also have the option of obtaining a loan from your bank, but many banks are reluctant to issue loans to cover a business’s operating expenses.

Your third option is to take out a merchant cash advance. With this structure, you borrow money against your organization’s future sales. Each month, a percentage of your credit card receipts goes towards repaying the loan. If business is slow, you won’t pay much. If, as in the case of a holiday event, your sales are high, you’ll be able to repay the loan much faster.

Dos and Don’ts of Merchant Cash Advances

If you decide that a merchant cash advance is the right choice for your business, it is important that you go about it properly. Here are some guidelines to help your business make the most of a merchant cash advance:

  • DO watch out for opportunities. If you see the opportunity for your business to move into a new market or attract new customers, then it can be worth it to get a cash advance to cover the costs of this new venture.
  • DO expect the unexpected. If delivery is a core aspect of your business and your van breaks down, then you won’t be able to wait until you can afford to fix it. Without a working van, your business could fall apart! Instead, a cash advance can get you back on the road and back in business quickly.
  • DON’T work with a cash advance firm that is not licensed. If you do, you may run the risk of becoming subject to predatory lending practices. Choose one that is licensed in your area to have the best chance of them being a reputable, honest company.
  • DO be prepared to show evidence of future income. The lending company will want to verify that you will be able to repay the loan within a reasonable amount of time. Showing copies of purchase orders or evidence of last year’s seasonal sales can go a long way towards helping you obtain the loan.
  • DO conduct research. Before entering into a cash advance agreement, make sure that you fully understand the terms of the loan, including any applicable fees and interest charges. The more you know, the better you will be able to make an informed decision.
  • DON’T overuse cash advances. While merchant cash advances can be a great option to cover emergencies or special events, this is not something that your business should be doing frequently. As with any loan, there will be interest attached, which will cut into your organization’s profits. Aim to use cash advances only when absolutely necessary to avoid digging yourself a financial hole.

Topics: PCI, NFC, Mobile Wallets