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Financing Your Business with Merchant Cash Advances

There are times when merchants need a quick infusion of cash to help cover upcoming expenses, whether those include: 

  • Employee salaries 
  • Utility bills 
  • Marketing campaigns
  • Product development 

Traditionally, the only option available to merchants was a bank loan, but qualifying for this type of lending is often a slow process. What’s more, businesses can't always expect to receive the funds required to meet immediate, short-term obligations. 

This is why many businesses now use ACH (Automated Clearing House) merchant cash advances instead. 

However, what is merchant cash funding, and why has it become so popular of late? 

How Do Merchant Cash Advances Work?

Technically speaking, a merchant cash advance isn't a loan. Rather, it is a lump sum of money with payments that are tied directly to the merchant's future income. Instead of making regular monthly repayments to the bank (plus interest), you promise to pay the provider with a daily percentage of credit card receipts. 

That percentage (known as a “holdback” or “retrieval” rate) ranges anywhere from 5-20 percent — depending on: 

  • The size of the advance 
  • The repayment period 
  • Your historic credit card sales 

Yet, how is this more beneficial than a standard bank loan? 

There are several reasons why businesses prefer using merchant cash advances: 

  • This short-term financing strategy requires far less paperwork than traditional loans. 
  • The approval process is much faster, with many merchants receiving the requisite cash in a matter of days — sometimes hours. 
  • Approval rates are also higher since you don't need perfect credit. As long as you can prove sufficient sales history, there's a good chance you'll qualify for merchant cash funding. 
  • Business cash advances have less accountability. You don't have to explain what you plan to use the money for — nor do you have to provide collateral upfront. 

Arguably the greatest benefit is that merchant cash advances work off percentage-based repayments: 

  • When business is booming, you pay more of the money back. 
  • When business slows down, the repayments become smaller. 

That being said, merchant cash advances aren't for everyone. Although this financing approach is faster, easier and more flexible, that convenience comes at a cost. Because merchant cash advance providers face more risks (and less predictability), they charge a premium for this service. Plus, when you actually run the numbers, merchant cash advances often end up being more expensive than bank loans — dollar for dollar. 

What Types of Businesses Benefit Most From Merchant Cash Advances?

If you're a new business — or an established one with poor credit history — a merchant cash advance may be the perfect option for you. For starters, you might not be eligible for a standard business loan. Though even if you are, the interest rates you'll receive could actually make merchant cash advances the cheaper option. 

If you have great credit history, taking out a loan may be the better choice, but this assumes you don't need the cash right away. 

Making Merchant Cash Advances Work for You

There's one final advantage of this financing approach. Because the approval process is relatively quick (and doesn't factor in your credit score), you can easily shop around for the best deals possible. 

We hope as you begin your research, you consider the advantages of using BluePay’s merchant lending programs. We offer: 

  • Faster-than-average approval turnarounds 
  • Incredibly low “holdback” percentage rates
  • Completely transparent pricing

Speak With a BluePay Representative Today!

Topics: Small Business Tips, Enterprise Business Tips

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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