What is a Merchant Cash Advance?

Sometimes, small business owners will need to borrow money, whether it’s for start-up help or after the doors have opened and the surplus/rainy day account is stretched thin.

For most merchants, small business funding includes major start-up expenses that would break the bank if not for borrowing options. These costs can include purchasing or renting a store location, renovating the space, renting or buying equipment, and ordering sufficient inventory.

This is where a merchant cash advance can benefit small business owners who need funding for their business. The funding comes from a lender who will look at the merchant’s credit card receipts and assess how much the merchant needs. There is usually a contract between the two parties that will outline the amount the merchant is getting and how much interest they may need to pay back.

What is a Cash Advance? A cash advance is a form of small business funding in which a lender gives business owners access to up-front capital. There are different types, such as credit card, merchant, and payday loans.

For obtaining a credit card loan, the credit card company often offers to fund money to a customer’s credit card account and allows them to go against their existing credit line.

A merchant loan is best for small businesses that need capital immediately to cover short-term expenses. However, it is not a traditional payback method; instead, the provider purchases the merchant’s future sales, and repayment is based on the merchant’s credit card sales; the higher the sales, the faster the merchant can repay the loan.

Lastly, a payday loan is when the provider gives the customer access to future payments from their employer. Generally, these funds can be accessed online or in person. There are different terms for each one, so be sure to research which cash advance is right for you.

Cash Advance vs. Bank Loan

In terms of comparing a cash advance and a bank loan, there are many differences between them that help merchants decide what would be best for them in the long run. A cash advance can be used to pay for renovations, buy new equipment, and replenish a rainy day fund. When applying for a bank loan, merchants can only use the funding for one project.

While a merchant may think this is great, it is a good idea to investigate which businesses can provide the best offer with a simple application process. Some businesses could charge exorbitant interest rates and hidden costs like a bank loan. Generally, merchants should look for a company that offers financing options, flexible credit requirements, processing time, and interest rates. Another research method is through a point of sale (POS) company. While banks could base their decision on a single credit score, certain POS businesses are more lenient with credit scores and will give funding immediately. Research the best POS provider with the longest payback time, the lowest rates, and the most flexibility. Bank loans have rigid application requirements and a shorter payback time. If a merchant requires a more extended repayment period, a flexible credit score, quick processing, and cheaper interest rates, a cash advance is the best option.

How Does a Cash Advance Work?

If merchants use a credit card for their daily spending when purchasing items, they find themselves in a pinch when a business doesn’t accept credit card payments. In that case, a cash advance can help give the merchant the funds they need. Merchants may also use this if they find that there isn’t enough money in their account and they need more loose cash to pay for particular items.

Merchants can get the cash advance from an ATM, bank, or convenience check through their credit card company. The balance is then added to their credit card, and interest is added to the amount until the loan is paid off. It is an excellent way for a merchant to obtain quick funding that can be used for any expense.

Benefits of Merchant Cash Advance

There are many benefits to obtaining one, such as getting a large sum of money in no time. When applying, the merchant doesn’t need impeccable credit and isn’t risking their credit score, and can use the money however they like. For example, if you received $20,000, you could use $15,000 to pay off debt, and the remaining $5000 to fund a new marketing campaign. This flexibility can be extremely beneficial to your business, especially if you’d like to utilize a cash advance for a few different costs. In addition, if a merchant uses the funding to improve their store, it can lead to more growth in their business in terms of profitability and customer satisfaction. You’ll generate buzz and word of mouth among satisfied consumers, leading to an increased customer base. These positive outcomes will make taking a cash advance worth your time and effort.

Start with NRS Funding today!

To learn more about NRS and how we can help you and your business contact (800) 212-1477 to get started!