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Why a Merchant Cash Advance Could be Perfect for Your Business

Finances are an integral part of any business.

It is what is used to purchase assets, pay staff, and more, so when it gets low there are always problems.

Business loans come in many shapes and sizes, and they have been used throughout time to provide boosts of cash when it is most needed.

One type of business loan that is growing in popularity is a merchant cash advance.

This is different from a traditional loan as the repayments are calculated using the money made after the loan is taken out.

So just what is a merchant cash advance? And would one be a good choice for your business?

Let’s find out.

How Does a Merchant Cash Advance Work?

With most loans, you borrow a certain amount of money, and to pay it back there is set price that is paid in return every month.

With a merchant cash advance, things operate very differently.

Instead of paying back a set fee, the repayments are based on future sales. The lender provides the money needed with the idea that it is going to provide a boost for the business, maybe in the form of new assets or staff that can help take their business to the next level.

In return, the amount of money made should rise.

A percentage of the revenue made after the loan is taken goes to the lender, and these payments continue until the loan amount is repaid.

The Process of Getting a Merchant Cash Advance

Instead of describing what this kind of loan entails, here are the four steps that a business takes when purchasing one.

  • Step 1: Application – This is when you approach a business such as Smart Funding Solutions and outline the details of the loan you would like to take. The lender will then assess your finances, judge your previous sales, and decide on how much to lend.


  • Step 2: Funding – Once future revenue and average sales figures have been calculated and a final figure has been approved, the funding can be sent to the business owner, and they can get to work utilising the influx of cash to improve their business.


  • Step 3: Repayment Begins – Once the funding has been sent, the repayment period begins. The lender will collect repayment by taking a percentage of the business’s sales, or a fixed amount until all money owed has been returned. The percentage is agreed upon before the loan is provided and will be taken at agreed installments, often monthly.

person in front of drinks van

Is a Merchant Cash Advance Right for Your Business?

Like any type of loan, there are advantages and drawbacks to taking out this kind of loan, so it’s worthwhile to do your research before applying.

Here are some benefits, and some downsides, that should help you decide if this is right for you.

Benefits of Cash Merchant Advance

Flexible Repayments

The fact that payments aren’t rigid is a big benefit to many businesses. This means that if you fall into a slower business period, you may not have to repay as much and your cash flow won’t be affected as strongly as it would be with rigid repayments.

Many businesses go through seasonal fluctuations in sales and this is ideal for situations such as that.

Minimal collateral

This is an unsecured form of financing, which means that collateral may not be needed for the loan to be approved. Due to the nature of the repayments, an amount will always be taken, it is just that the final figure will change according to sales.

As this is agreed upon and the payments correlate with earnings, there is no need for collateral or assets to be used as security for the loan.

Quick Access to Funds

When many businesses apply for a loan, they need the money in as quick a time as possible, which makes it ideal in times of emergency.

With some more traditional loans, it can be hard to get approval in the timescale needed, as thorough credit checks have to be made and collateral sorted.

With a merchant cash advance, you negate the need for really thorough checks, and this can lead to a much quicker turnaround time.

In some cases, it may only be a few days and the cash could be in your back ready to boost your business.

Downsides of Merchant Cash Advance

Higher Costs

This type of loan does have some downsides, and the first one is the cost.

This is a really flexible loan, and you pay for that privilege with higher fees. While all loans come with interest which is normally a small percentage, with a merchant cash advance it is often a larger number.

While the repayments correlate with sales, the amount you would finally pay back when the loan is fully repaid will be higher than some other loans.

Reduced Cash Flow

Cash flow is one of the most important numbers for any business.

With a merchant cash advance, you lose out on a portion of your daily sales, as these are used to help pay off your loan.

In the time that you are repaying the loan, this will have an adverse effect on your cash flow, reducing the figure slightly.

While in the long run you should see improvements, it can cause issues in the short term if you are struggling for finances.

Lower Loan Amounts

If you are looking to borrow a big sum of money, then this may not be the right choice of loan for you.

Depending on how much money your business is expected to make, the amount of which you can borrow will be limited.

While the payment terms are flexible, you won’t be able to borrow huge amounts.

coffee shop

Merchant Cash Advances from Smart Funding Solutions

A merchant cash advance could be ideal for some businesses. It takes the pressure off due to flexible repayments and can help you incrementally pay back what you owe as your business grows.

While it may not be the perfect choice for all businesses, there are many that it will be perfect for.

If you think you are the latter, then why not get in touch with Smart Funding Solutions.

We can help provide the funds your business needs with quick turnaround times and flexible terms, so apply now to see what we can do for you.

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