Merchant Cash Advances for Businesses with Fluctuating Revenue Streams
Managing cash flow can be a significant challenge for those businesses experiencing fluctuating revenue streams. When you’re in a situation like this, traditional loans and lines of credit may not always be accessible or practical for you. However, this doesn’t mean there is nothing you can do; there is a financing option, known as a merchant cash advance, that is specifically designed to address this issue.
What is a Merchant Cash Advance?
A merchant cash advance is a unique type of funding that offers businesses upfront capital in exchange for a percentage of their future sales. It’s important to keep in mind that a cash advance is considered a purchase of future receivables. When a company gets merchant cash advance, the lender will provide a business with a lump sum of cash.
How does it Work?
When a company requests for a merchant cash advance, the supplier evaluates the company’s sales history, paying particular attention to the credit card purchases the company has seen. The provider will offer the company a lump sum of cash if the cash advance is authorised; the amount you get is often dependent on the business’s expected future income. Then, a portion of the company’s future revenues will be used to repay the merchant cash advance.
What are the Advantages?
Merchant cash advances offer several advantages for businesses:
- Quick access to funds
- Flexible repayment
- No collateral requirement
What to consider before opting for a Merchant Cash Advance
Although merchant cash advances can be massively beneficial for your business, we advise that you always consider the following factors before applying for a merchant cash advance:
Cost: Merchant cash advances often come with higher fees when compared to traditional loans. Always make sure to carefully assess the cost implications of this type of finance and evaluate the potential impact the cash advance may have on your business’s profitability.
Sales volume: Since repayment is based on a percentage of sales, businesses with higher sales volumes may find it a lot easier to manage the repayment process. It’s important to analyse your sales projections and make sure that the repayment terms align with your businesses cash flow.
Alternative financing options: Before you commit to a merchant cash advance, explore other commercial financing options available to your business. Consider comparing terms, rates and requirements to find the most suitable option for your specific needs.