Most small enterprises need additional financing at some stage of their activity, and bank loans are still the most common method of obtaining the necessary funds. However, due to the fact that the criteria for granting loans are still highly restrictive in many banks, not all companies can get cash in the traditional way. This is particularly difficult for enterprises that do not have an acceptable credit profile, security or a sufficiently long and documented internship. Fortunately, there are various alternatives to large banks, such as a buyer advance. Let’s analyze them and see if they are a good solution for your company.
Get a quick and easy merchant cash advance loan
The merchant cash advance loan, which is redirect to https://acfa-cashflow.com/ is primarily for companies that make the majority of sales transactions using credit or debit cards. After the company providing the service provides your company with the agreed amount, you repay it – plus a fixed fee – allowing that company to keep a small portion of your company’s monthly profits from the sale of credit card transactions. In order to be able to calculate the exact amount that you will have to pay back, your company will be assigned an individual loan cost ratio along with the loan amount granted.
The cash loan cost ratio is just one variation characteristic of a merchant’s down payment – the “deferred amount” is another. This is about the percentage of the company’s sales transaction using credit cards, which belongs to the company dealing with the advance payment service until you pay back the full amount. This form of financing is usually a short-term loan and, in general, it is repaid over a period of six to nine months. It is worth noting, however, that the deferred amount may be very different depending on the company providing the buyer’s down payment, the sales volume in your company and the amount borrowed. Companies that provide a down payment service may wish to retain only 5% of your monthly profits from transactions with credit card sales, although in some cases the amount may increase to 40%.
Lower Repayment Amount in Case of Downturn
Because the merchant loan action mechanism is based on deducting a certain percentage of the profits from the sale transaction using credit cards, and not a specific amount each month, this option is ideal for companies experiencing fluctuations in sales results. Let’s say your company’s sales results are lower in the first few months of the year. If you took a traditional bank loan, in this lean period, making the required repayments may be a problem for you. Meanwhile, in the case of a trade advance, you simply pay less because you have earned less. Conversely, if a month occurs when you experience a record turnover in the sale, you will pay the same percentage, but a much higher amount, so that you can settle the loan faster.
Quick access to Cash
Traditional bank loans often involve the need to “roll over” a multitude of securities, including the personal credit history of the business owner and the company’s credit history, as well as the security of liabilities. In turn, the paperwork that needs to be done to obtain a merchant advance is not usually burdensome, as the companies dealing with this service are primarily interested in the volume of sales (and how long you run your business – the usual minimum is 12 months). As a result, the loan collateral is usually not required and even companies with a weak credit profile can get it. All this means that in the case of this financing option, the waiting time for the decision to accept the application is extremely short – usually a working week or even shorter. This is extremely valuable for companies that need quick access to cash, especially if they face difficulties when applying for a bank loan.
The Right Choice for Your Company
If all this sounds too good to be true, remember that the merchant’s down payment also involves a risk. For example, before you sign a contract, you need to know whether a loss of a certain percentage of sales profits will not make you unable to pay wages, rent or invoices from suppliers. In addition, the cash loan cost ratio typical of a commercial advance is usually much higher than the actual interest rates at which traditional bank loans are granted. However, this is because trade advances are provided as short-term loans and are usually repaid over a year.
As with any other loan option, business owners must consider the pros and cons of a down payment and decide if this is the best way to finance their business. While the Merchant’s Advance is best treated as a valuable way to get quick access to the necessary funds and to provide the company with the possibility of rapid development, this option is probably not suitable as a long-term financial instrument. Business owners who care about this should seek to transition from “bridging financing” to a loan with a longer repayment date and lower associated fees.
Although the majority of small companies applying for additional funding still use the services of banks, there are a large number of reliable and alternative lenders offering niche services. Among them, companies dealing with the advance payment of merchant are getting more and more popular. So if your business carries out numerous sales transactions with the use of credit cards and you want to use it as a lever to get extra cash, a buyer’s advance may be the best option for your company.