Merchant cash advances are fast becoming an important source of short-term lending for small businesses. With traditional bank loans becoming harder to come by, especially for small businesses, people are having to look for alternative funding in order to invest in new equipment, stock and staff, as well as any other investment opportunities that may arise.
Cash advances are simple; a business will lend the money and then repayment of the loan is recurred via a percentage of credit card transactions each week/month. They may feature steep interest rates and fees, but are becoming more popular due to the fast approval rates, quick and simple applications and a quick turnover from approval to funds landing in an account.
Can cash advances hurt your credit score?
There is no direct influence on your credit score when you take out a cash advance but there are indirect ways in which it can change your rating.
A lot of cash advances are administered via credit card companies, this means when you borrow a certain amount of money, that amount will show up on your credit card. This will inevitably increase your credit card balance and tip it more towards your credit limit.
Credit card companies compare your total amount of debt divided by the total amount of credit available to you in order to calculate your credit score. His is known as your credit utilisation ratio, and if the percentage increases, which it will if your total amount of debt is closer to your upper credit limit, this high credit utilisation can negatively affect your credit score.
As with all loans, prompt repayment is expected and any deferral on payments has an almost instant impact on your credit score. Luckily with merchant cash advances, the amount you pay back each month is set as a percentage of your takings, so that if you have a slower month in terms of income you will still only have to pay a certain percentage, rather than a set amount which you may not be able to afford.