A merchant cash advance has many advantages for any business. This type of financing structure involves a financial institution called a factoring company prepaying you for your credit card receipts by taking a percentage of your receivables in exchange. This can be a great way to finance new purchases in your business or to fund the daily operations of the company. Here are three great reasons your company might benefit from this type of alternative financing.
Don’t Acquire New Debt
You have all the faith in the world that your new business is going to be majorly successful but acquiring new debt through a traditional loan may not feel like the right move to you for whatever reason. If you’re trying to keep your business out of debt, working with a factoring company to do a merchant cash advance could be a good option. Not only do you avoid taking on more debt for your business, but you’ll also enjoy financing that won’t charge you interest. The fees from the factoring company are straightforward and you won’t end up paying them back more than you owed through an annual percentage rate.
Don’t Hurt Your Credit
If you go into a traditional bank and try to apply for a business loan, they’ll have you fill out a form with all of your financial history and then pull your credit. If you have a long history of making payments on time and in full, and your business is already wildly successful, this may not be a big deal to you. However, if your business is newer and doesn’t have an extensive history, or if your business or personal credit is low or there just isn’t enough of it, you could run into a problem. Many factoring companies, however, can offer you financing even if you only have a couple months of credit card sale history.
Don’t Take on As Much Risk
With a traditional loan, you’re paying an interest rate equitable to how much risk you pose to the financial institution giving you the loan. If you’re unable to repay the loan, the lender can come after you for whatever you put up as security and may even pursue legal action. Merchant cash advances are often a good alternative choice because it’s not a loan at all. The company is collecting a portion of your credit card sales and that’s as far as the relationship goes.
A merchant cash advance may be beneficial for many reasons. If you’ve done your research into all the traditional financing options and are coming up empty, take a look at this unique alternative to determine whether this might be right for you.