Plus and Negative Points about Merchant Cash Advance
What Is It?
Very often in business people need an urgent loan for their work, and it is not provided by the bank or any other organization at short notice. Previously, one had to cancel his/her plans due to non-availability of funds. The past few years have given birth to a good alternative: Merchant cash advance.
It is not exactly a loan, but rather by business details and credit cards, etc. an advance payment can be obtained and invested in the business. It is a novel concept and isn’t well known among business owners.
Operation
For businesses that generate revenue by credit card, they can readily benefit from this service. For instance, restaurants would be a good option.
When one applies for merchant cash advance, an advanced amount is given to the client with the agreement to have the given amount back by sharing a pre-discussed profit in the business in the future. It benefits both the lender and client.
Plus Points
Some golden points come if one uses such an option for her business.
- It is easily accessible as compared to conventional loans.
- It does not require extensive work on client’s side. One can save time in this phase.
- It does not require much business success for the lender. Since it has already been mentioned that the deals are done on prospects of the future sales of the company, it is quite a simple method.
- Since it is not a conventional loan, it does not have to go through tough legal procedures.
- Since banks and big organizations are not involved it means no complicated and long procedures.
- It is an ideal option for smaller retailers. Restaurants and small start-ups are good examples.
- It is especially a benefit for small businesses with low profits. Such endeavors are often rejected by banks and other organizations and need a supporting hand for their future sales. Advance merchant cash is a boon in their world.
Negative Points
Some disadvantages cannot be ignored.
- If on the one hand, it is a good thing that it is not a proper loan but a promised profit in future sales, it poses a serious threat to one’s authority on her own business. The client can demand 30% to 50% share in the profit.
- This system is affected greatly by the condition of the business. For fast prospering business, repayment is quick. However, for times when business is progressing rather slow, the repayment is very slow.
- It is not recognized on a large scale; regulations are not in place to govern and protect lenders or owners.