3 Things to Consider When Taking a Merchant Cash Advance

Cash flow is a common concern for business owners. For many businesses, merchant cash advances are a viable solution to cash flow challenges while you wait sales income to hit your account. Before you apply for a cash advance, it’s important to do your homework.

With a merchant cash advance, you receive a lump sum of cash in exchange for a predetermined share of future sales. It can open doors for your business. Here are four important things to keep in mind before getting a merchant cash advance:

1. How Good Is Your Credit History?

If your business relies heavily on credit card sales, accepting a cash advance may fit your needs. Merchant cash advances are tied to future sales, not past credit ratings, which makes them appealing to merchants with blemishes on their credit reports.

If your credit history is strong, however, you may be better off with a standard merchant loan. Loan processing may take longer, but the effective cost of the loan may be lower.

2. Shop for the Best Merchant Cash Advance Deals

If you do opt for a business cash advance, shop around for the best rates. Remember, this cash influx isn't a loan; you’re selling a portion of future revenue. The higher the percentage of future sales, the less money you’ll have each month to invest in the business and pay bills.

For example, you might accept $20,000 in cash and promise to pay off the advance with $30,000 in future credit card sales. If this were a loan, you'd be paying an effective interest rate of 50 percent.

No matter how the merchant cash advance is structured, insist that the "lender" provide a projected APR as if this were a standard loan. This makes comparison-shopping much easier.

3. How Confident Are You in Future Credit Card Sales?

Merchant cash advances can help you get through tough times. But you don't want to pursue this avenue if future credit card sales are expected to be low. You might also struggle to obtain a merchant cash advance. If you project credit card revenues to be low – for instance, if your customers typically pay by cash or check – consider other financing options.

Learn More About Merchant Cash Advances

Used wisely, merchant cash advances can help your business grow and thrive. If you need help understanding merchant financing options, a BluePay representative can walk you through how to get started today.

BluePay Processing, LLC is a registered ISO of Wells Fargo Bank, N.A., Walnut Creek, CA, U.S.A.
BluePay Canada ULC, is a Registered ISO/MSP of Peoples Trust Company, Vancouver, Canada.