In merchant cash advance procedure, the lender purchases a small percentage of the future credit sales till the time the payback gets completed. This cash advance is a popular choice with the merchants, as it does not require any sort of credit check. Generally merchants who are not able to get bank loans approved for their businesses opt for these cash advances.
A merchant cash advance is a great option as it is generally very difficult to get a loan approved from a bank or any other institution for business purposes. The payback funding charges can vary from one cash advance to another. Generally, these charges are highly negotiable and the interest rate for the amount depends solely on the lender. For example, at times the payback on a $5000 loan could be anywhere between $6000 to $7000.
There is no fixed monthly installment for the merchants. They can keep returning the amount depending on their daily sales. If they sell well, then they would be able to payback in shorter time duration than if they are unable to run their business profitably.
There is no time limit to pay back the loan amount, thus decreasing the annual rate. Generally, a lender gets back his amount in less than a year.
The merchant cash advance is considered a great option, as it would be very difficult to qualify for a bank loan otherwise. Though the funding does turn out to be more expensive but the other advantages associated with this loan certainly makes it rather popular with merchants.
This cash advance does not consider the credit history of the merchant. This means that even if the merchant has a past recording of tax issues, collections, judgments or liens, his loan amount is easily granted.
The lender risks a lot of his money funding these unsecured loans. It is due to this reason that the interest rates for such merchant cash advance are much higher than the traditional loans. The lenders can determine the future sales by using the advance-funding models. Cash advances with a short payback term are also offered by the lenders to counter the risk involved.
The approval for these loans is much easier than applying for the other bank loans. Generally, these advance lenders lend without checking the credit details of the merchant. Still there are some lenders who do ask for the credit card statements of the merchants. All merchants who do not have any other funding options available can easily consider a merchant cash advance for their businesses.