How to borrow and repay the cash advance
Do you qualify for a merchant cash advance?
If you have a business with strong credit card sales, you may qualify for merchant loans or cash advances. What about traditional loans? It may be possible that your business does not qualify due to poor credit or little to no collateral. In exchange for a share of your future sales, the provider offers you a lump sum payment.
The lender's promise
The idea here is that the cash advance is a sale and purchase of future income rather than a loan. This is why the lender is not necessarily bound by limiting interest rates and lending laws.
Repaying the loan
Rather than making fixed payments on a regular basis, the lender collects a percentage out of your credit card sales. This happens on a daily basis until both the advance and associated premiums are all recovered, usually in under one year.
The pros and cons
There is neither a fixed date nor fixed sum to repay the lender. You pay in accordance with the sales you make in your business. This means you pay less in slower months. This can prove to be an ideal condition for the survival of your business.
Interest rates can start from 60 percent all the way up to 200 percent APR. The premiums can in fact amount to 30 percent of the cash advance itself.
Tips and warnings
Treat a merchant cash advance as a loan
Obtaining a business cash advance does differ from traditional loan options and the chief differences lie in its swift approval and high interest rate. Which is why it is advisable that you treat it no differently than you would a traditional loan, or you may find yourself in a worst predicament than before.
A last minute fall-back
Better yet, use this option as a last resort. Approval for a cash advance is faster and easier and even repayment is more flexible but repay you must, and at a higher premium than usual. Therefore, understand the terms well before you commit.
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