When you’re operating a small business that you started with your own savings, you take special pride in its daily successes – and you take the most discomfort when things go awry. So when you see threats to liquidity keeping your business from being its best, it’s natural to get frustrated.
Small businesses have a difficult time getting what they need from traditional lenders. Banks have always been leery of the small business loan business, because banks only like to lend to “sure things.” That’s why they don’t like to extend mortgages to people with credit blemishes and who can’t demonstrate a solid, reliable income stream (have you ever tried to apply for a traditional mortgage after starting your own business, even if your business is a rousing success?).
So if the bar that you and your friend opened has become one of the trendier places in your part of town and you’re thinking about expanding to that new space that just opened up when that awful Vietnamese restaurant with the terrific location closed down the street, but you’re wondering how you’re going to pay to renovate the interior, that is when merchant cash advances can come in handy.
Don’t get us wrong – one of the most important pieces of merchant cash advance information that a lot of brokers will leave out is that they’re expensive – more so than small business loans. If you take out a $50,000 merchant cash advance, you’re going to have to pay $60,000 – $70,000 back over time to satisfy that debt.
Why? Because you do represent a risk with your credit blemishes – and you aren’t securing the loan with any collateral or any assets. Instead, the lender is betting that your credit and debit card transactions will continue to bring in enough money to keep your business up and running – while also allowing you to pay back the advance as time goes by.
How Merchant Cash Advances Work – The Info on Merchant Capital
Here’s how merchant cash advances work. Let’s say that you take out a $60,000 cash advance to help pay for renovations at that Vietnamese place so you can transform it into that cool sports bar that you were envisioning in your own location but simply didn’t have the space to achieve. The lender liked your risk profile, so they gave you a factor rate of 1.2, which means that you’ll be paying back $72,000 over the next few months. The contract required that you pay back 10% of your credit and debit card sales each business day until you pay off the note.
After approval, you get the money within a few days, and then the payments begin. (NOTE: Do not sign a contract with a company that wants to put the money into escrow and then distribute your share to you or who wants to have your credit card company run a “split settlement” system. Either of this will delay your money coming to you. Amansad Financial does not deal with lenders who require these provisions.) Let’s say that 10% of your daily card sales are supposed to go to satisfy the note. So if you have a huge Saturday night and make $12,000 in card sales, then you get $10,800, and the lender gets $1,200. But if there’s a really slow Monday and you only bring in $1,500, then you only pay the lender $150 – and you get the other $1,350. So you make steady payments without having a fixed dollar amount that can cripple your cash flow.
Would your business benefit from a merchant cash advance? Call or email one of our professionals to find out what this can do for your company. We look forward to connecting you with the capital that you need.