Merchant cash advances are increasingly becoming a popular means for funding business expansion, acquisitions, and much more. If you’re thinking about applying for a merchant cash advance, or have already done so, here are seven tips for using a merchant cash advance:
- Be prepared to pay on time
When you apply for a merchant cash advance, you’ll need to put up collateral to back the loan. This collateral (typically the business’s bank accounts) will be set up as a restricted account. The funds won’t be available for your use until you’ve made your payments for the month. This means that if you miss a payment, the lender will have access to the funds in the business’s bank account.
- Don’t apply for more than you need
Many business owners will decide to apply for a merchant cash advance to fund multiple needs such as growing their business, funding a merger, or to pay down a loan with a less favorable interest rate. It’s important to remember that applying for an advance with multiple purposes can lengthen the time it takes to receive funding.
- Understand your repayment terms and costs
Before you apply for a merchant cash advance it’s important to understand the repayment terms and potential fees associated with the advance. You don’t want to be shocked by the final amount due and be unable to use the funds for their intended purpose.
- Communicate with the lender
As with all cash advances, the merchant cash advance you apply for will likely require a personal guarantee from you. If the business you are in is struggling, or isn’t growing as expected, communication is important. You’ll want to make sure the lender is aware of any issues and that you are able to work with them to resolve any issues as soon as possible.
- Understand how much and when to borrow
This is important for any cash advance but is especially important when it comes to a merchant cash advance. You don’t want to over-borrow and not be able to meet your repayment obligations, but at the same time, you don’t want to under-borrow and not have enough cash to fund your growth or expansion.
- Plan for future funding
If your business isn’t growing as expected or you are struggling to make your payments, you’ll want to turn this around as soon as possible. The longer it takes, the more it costs. In some cases, it can take as little as three months to obtain a merchant cash advance, but in other cases it can take six months or more to obtain funding. Be sure to keep this in mind and plan accordingly.
- Understand your risks
As with any financing arrangement, there are risks involved. If the business you are in has an upturn, the merchant cash advance could be called. When that happens, you’ll need to repay the loan right away. If you are unable to do so, you could lose your personal assets, including your house. If your business is struggling, you may need to sign a personal guarantee making your assets liable.
With so many benefits to applying for a merchant cash advance, it’s easy to see why it’s becoming a more popular alternative to traditional bank funding. If you are thinking about applying for a merchant cash advance, or have already done so, remember these seven tips to help you get the most out of your merchant cash advance.
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