Balancing the risk and the reward of merchant cash advances

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.

Even the best laid plans often go awry; so goes the saying. His statement rings especially true for small businesses. No matter how well you plan for the future, inevitably something is going to occur which is going to affect cashflow. This could be anything from late payments from a supplier, breakdown of equipment or facilities, a loss of staff or even just an investment opportunity that has landed in your lap.

Traditional bank loans are a stable form of lending, the only problem is that the process of applying to the point of actually having the loan in your bank account is a long one. Few businesses can survive a long downtime when it comes to production and sales, so a newer form of lending is required, one that can be confirmed and delivered within 24 hours, so that operations can get back to running smoothly and investment opportunities don’t pass by.

The big question you have to ask yourself before deciding on a merchant cash advance should be is it worth the risk?

As with every loan there is an element of risk. Merchant cash advances are calculated using projections of future income through credit card transactions. It is the credit card transactions that will be the way you pay back the loan each month, which is the reason that this type of lending has become sought after amongst industries like hospitality and retail that deal in a large amount of smaller credit card transactions on a monthly basis.

The loan repayments are an agreed upon percentage of these monthly takings so even if you don’t earn as much from one month to the next then your payments won’t grow out of hand.

Due to the speed and accessible eligibility criteria, the percentage you will pay back each month will be generally quite high. This can mean another form of lending, such as invoice finance, may be more beneficial to your business as long as you can wait for a decision to be made and don’t need funding immediately.

Always compare merchant cash advance quotes online before making a commitment.

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