The key difference between a merchant cash advance and traditional lending products
View PDF | Print View
by: AksonDon
Total views: 5
Word Count: 484
Date: Fri, 6 Jan 2012 Time: 2:53 AM
The merchant cash advance is among the newly developed forms of monetary aids for businesses that is expected to witness a substantial boost in popularity over the next years, financial analysts say. To put it simply, the estimated tapped potential of this business is a mere ten percent and the total market is evaluated at approximately ten billion dollars. But, what exactly differentiates the merchant cash advances from the regular credit lines and why should business owners consider them? Let’s find out!
One of the principal differences between the merchant cash advance and a business loan is that for the former one companies, are not constricted by fixed pay dates. In essence, the repayment of the merchant cash advance is performed automatically by sending the lender a percentage of every transaction conducted by the debtor. In essence, every time the debtor company makes a sale and that sale is processed by the credit or debit card company with which he is affiliated, the merchant cash advance lender gets a cut. Therefore, this form of financing provides the borrower with an extended flexibility in an unstable economical climate and allows companies to make payments without significantly impairing their business.
The percentage that will be deducted from the borrowers' sales is discussed prior to the Advance agreement and it is based on the value of the sales of the company. On a side note, in order for companies to be eligible for a merchant monetary advance, they are required to have been in business for at least one year. At the same time, the maximum cash that can be borrowed on this system is generally double the value of monthly sales. However, the highest loan is also influenced by the time in which it should be repaid and the percentage that can be deducted from the borrowers transactions.
Now, borrowers should not be led to believe that, in terms of money owed in the long run, the two forms of financing are entirely different. Simply because the merchant cash advance provides more flexibility, it does not entail that borrowers will pay less for the working capital. When discussing the Advance with the accounting department of the lender, the borrower will be notified regarding the total amount of cash that is expected to be repaid by the end of the agreed period.
However, it is in the best interest of the merchant advance lenders not to charge their clients with extreme amounts that would hinder their business and lead them to bankruptcy. It is simply common sense that a lender of this type should work closely with the debtors in order to reach an arrangement mutually beneficial for both of them. If the debtor company thrives and the sales go up, then the creditor is able to receive its investment much sooner. In essence, the relationship between the merchant advance lenders and the debtors is symbiotic.
About the Author
To put it straight, merchant cash advance is a highly undertaken method nowadays so have you tried a merchant cash advance loan to lift your business up yet?
Rating: Not yet rated
