Merchant cash advance is often the most lucrative option for most small businesses that are in need of some emergency cash to operate or expand their business. However, if you conduct an online search, you would be amazed at the abundance of lenders who are ready to offer merchant cash advances. All these options are sure to make you get totally confused on which one to go for.
A couple of merchant cash advance lenders may contact you directly by purchasing your details via merchant cash advance leads. However, this doesn't mean you borrow the advance from them without checking.
Here are a few things you can consider while choosing a merchant-cash-advance lender to fulfill your business needs:
Most merchant-cash-advance lenders will be ready to take you for a ride by offering advances within the shortest span of time. Remember – if it looks too good to be true, it probably is. Once your merchant cash advance application is approved the lender might charge you a slew of unnecessary costs. Yes, some amount of fee is usually charged for every cash advance. Nevertheless, if the lender is charging you too many closing costs in addition to this, he is probably not the one for you to choose. Unlike business loans, merchant cash advances do not require any interests to be paid. So the lender that you choose should not impose any interest rate while giving you the advance.
Volume of credit card sales per month
Almost every merchant-cash-advance lender will consider a certain average monthly credit card sales income (between $1500 and $5000), before approving the advance. For this, you may have to submit credit card statements of the last three or six months. Nevertheless, if your business is seasonal and it is normal for your monthly credit card sales to drop below the average monthly credit card sales requirement during the off season, it is better to choose a lender whose requirement here is lower. Else, go with a lender who would require you to submit credit card sales statements for at least 12 months.
Your time limit
Merchant cash advances generally do not require too much of documentation. Therefore the process of application and approval is not that long. However, there are lenders who might take a couple of days to give you the advance, in spite of you submitting all the necessary documentation. Also, the requirement of documentation and the time taken to approve the MCA might differ from lender to lender. While a few lenders make do with just the application and the monthly credit card sales documentation, there are others who make it a point to ask for lease agreements, voided checks, photo IDs and bank statements. In case you need the money urgently you may want to go with a lender who requires the least documentation and processes the advance much speedily. Else, you may have to make sure you have all the documents ready. Ideally you should get your money in about a week or two. If you need faster than this you may have to check out online options.
Your financial requirement
A maximum amount of about $600,000 is what you can expect through a merchant cash advance. However, how much you are eligible to receive would depend on the volume of your credit card sales transactions per month. The rule is simple – If you are making more money per month, you will be eligible to borrow more money as merchant cash advance. Typically, you would be eligible to receive about 20 to 30 percent in excess of what you make through credit card sales transactions every month.
You stand a better chance of choosing from more options and negotiating with lenders if you are an established business. Most MCA lenders consider factors such as number of years in business, number of years you have accepted credit cards and the sales volume that you have maintained over these years, before giving you the advance. So, if you want to make the most out of merchant cash advances, you will have to be:
- An already established business
- A business that has a credible financial history
- A business with a decent income from credit card sales
The most important part of merchant cash advance is to get approved. However, this doesn't mean you go with the first lender who approves you. Go through the terms and understand the kind of fees and penalties involved. Find out if you will be able to pay off the cash that you have borrowed and then make your decision on whether or not to borrow the advance from the chosen lender. You may want to check out a few things such as:
- The requirement to pay off the full balance after a certain time period
- Fees that you may have to pay if your credit card sales volume drops
- The repayment periods – whether balloon or extended
- The consequences you may have to face if you are unable to repay the advance as expected by the lender – there are lenders who withdraw money directly from your business checking account or place liens on your business equipment.
There is no collateral in merchant cash advance unlike other types of loans. Therefore the kinds of costs that are involved in these advances are huge. You may have to be ready to pay them before you borrow the loan. Also since the repayment period starts off as soon as you receive the advance, it is important to make sure the credit card sales that you are currently making is good enough to support such repayment.
Negotiating with the Merchant Cash Advance Lender
Negotiation is a skill that you need to develop if you want to achieve success as a business. Same thing holds good while choosing a merchant-cash-advance lender. Nevertheless, before negotiating with an MCA lender, it is good to know about the terms you can negotiate upon.
There are three terms you can negotiate upon while choosing a merchant-cash-advance lender.
- Discounts: Most credit card processing service providers happen to offer merchant cash advances. Therefore it is always better to check with your existing credit card processing service provider before starting to look for an MCA lender that you hardly know. As the say – “A known devil is always better than an unknown angel.” You will already have an established relationship with your merchant service provider and this will put you in a better place to ask for discounts.
- Rates: If you have an excellent financial and sales history, you should easily be able to negotiate on a better rate with your MCA lender. Alternatively you can pledge your bank account access or your business equipment as collateral in order to get a good rate. However, be very careful while choosing a lender who offers such an option. Check references. Go through the BBB (Better Business Bureau's) vendor ratings and see if there are any complaints filed against the lender.
- Repayment schedule: The Repayment schedule is usually flexible and can be negotiated upon while choosing an MCA lender. Nevertheless, do remember that daily or monthly minimum fees would add up to your transactions.
Read the terms of the service agreement carefully before signing the same. These are the terms that you cannot negotiate upon once you have signed it.
So, before you say yes to one of those merchant cash advance lenders who come to you through merchant cash advance leads, consider all the points that you just read in this article.
Author writes for Heritus Lead Transfer LLC. A Merchant cash advance lead generation company in New York, US. Contact Heritus if you need Merchant Cash Advance Live Transfers.