As most entrepreneurs can tell you, coming up with a business idea is the easy part of project development. The hard part is finding the necessary funding, and seeing to it that your business is financed properly. Luckily, merchant funding has made this whole process a lot easier.
But what precisely is merchant funding?
And how are you supposed to use it to finance your business?
Well, that is what we are here to find out.
What is merchant funding?
Among the newest ideas in alternative business finance, merchant funding, or merchant cash advance, is quite popular.
Both retail businesses and leisure sectors and making great use of merchant funding, as well as smaller software development companies.
Merchant funding is, in a nutshell, a system where your lender will use your card terminal to ensure you get a loan.
This makes it ideal for a business with very few assets, but with a substantial volume of card transactions.
The lender gets repaid by taking a portion of your revenue.
This alleviates the pressure of having to come up with a certain amount of money every month and lets you focus on developing your business instead.
Repayment loans on merchant funding are always calculated as a percentage of your monthly revenue.
Benefits of merchant funding
To give you an idea of how useful merchant funding can be, we are going to cover the major benefits of it.
To get a full picture, we are also going to cover the potential downsides of opting for this kind of funding.
However, in our experience, the benefits usually outweigh the downsides, especially if your business doesn’t have any valuable assets.
Easy repayments
One of the best things about a merchant cash advance is that your repayments are calculated as a percentage of your revenue.
This means that they will go up or down, in proportion with your income.
So, if the business is doing well, you’ll be able to repay your loan faster.
And, if the business is stalling, you will have lower payments, which gives you room to improve your everyday practices.
This correlation between your loan payments and income gives you the necessary freedom to run your business properly.
Financial freedom
In order to run certain types of businesses, you might need to get funding in various places.
Luckily, merchant funding places no restrictions on you as it effectively opens a new line of credit.
You will be able to easily get other types of funding, along with the merchant cash advance.
This is especially useful to remember if you want to use rented equipment because the merchant fund lender doesn’t care about your assets.
It is quite common for business owners to have multiple sources of funding.
Potential downsides
While there are a ton of benefits to getting the merchant cash advance, there are certain downsides that you should know.
The first thing to note is that the amount of money you can get is based on your turnover.
For instance, if you want to borrow $10,000, but your company only makes $2,000 per month, you won’t get funding.
After all, the lender wants to be sure that they’ll get their money back.
This is why the general rule is that you’ll be able to get funds in the amount of your average monthly revenue.
Therefore, if you get $2,000 a month, you will probably get a loan of $2,000.
The second thing to note is that, if your company gets paid in different ways, then this type of funding may not be the best solution.
This is because merchant cash advance is based around businesses who do their dealings via a card terminal almost exclusively.
Therefore, if your company takes cards, but also does invoices and bank transfers, you might think twice about whether it is a good fit.
You should only consider merchant finance advance if your main line of income is through cards.
Furthermore, because many lenders only work with certain providers, you might have limited options.
In this case, they will be dependent on whether or not you already use the right terminal provider.
However, you can find some that work with a wide range of terminal providers.
Some of the best merchant cash advance providers in the U.S. (according to business.org):
- Lendio has the best ranking overall.
- PayPal Working Capital is aimed towards PayPal users.
- Fundbox if you have bad credit.
- Kabbage is most convenient.
- CanCapital aimed at repeat borrowing.
- National Business Capital is excellent for large loans.
Can you get a merchant cash advance?
Now, after all that we’ve mentioned, you might be wondering whether you are eligible for a merchant cash advance.
Well, any business that uses a card terminal to take payments from customers can get it.
When you get a merchant cash advance, the lender doesn’t ask you for credit checks or to get a detailed look into your accounts.
They deal directly with the terminal provider.
This gives the lender a “live feed” on your revenue and overall financial changes.
The lender can then quickly see what your business makes during an average month, they can come up with a loan amount much faster than with other types of funding.
This is what allows merchant cash advance providers to function without asking you for assets as insurance.
A lot of beginners apply for such loans, simply because they can be much easier to pay off than standard ones.
Final thoughts
Seeing that it is safer than ever to shop online and that there are terrific companies that deliver products via air to almost any part of the world, we wouldn’t be surprised to see more business owners opting for merchant funding.
If you run a business that only works via card terminals, and you want a quick financial boost, a merchant cash advance is the way to go.
