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Thinking About A Merchant Cash Advance? Ask These Questions First

by Ian Wallace

If you're hoping to make purchases to get your new business off the ground, it can be hard if you don't have a lot of extra cash sitting around. Cash advances for merchants, also called merchant cash advances or business cash advances, can give you the money you want. In return, you'll have to allow them to take a percentage of your credit card sales for a specified amount of time until your advance has been repaid. This can be an attractive solution for your financial issues, but before moving forward with one of these advances, ask the following questions.

Does My Company Take Credit Cards?

If you don't take credit cards as a form of payment, you might not be eligible for these kinds of advances. You might have to take out a business loan instead, unless you can find a cash advance company that will accept ACH transfers from your business bank account.

How Much Will I Ultimately Pay Back?

Different cash advance companies have their own interest rates that are rolled into the full amount you will need to repay. Do some comparison shopping among different lenders in your city so that you aren't shocked to find out the amount you are ultimately responsible for.

Will Something Need to Change While I'm Repaying the Advance?

To be able to better plan your company finances, it's important that you think ahead and determine how business will be affected by the money coming out of your sales to repay your cash advance. Will you need to raise prices on some items? Will you have to cut costs? If so, where? Before you get a cash advance, it's vital to know how you'll handle things while you are paying it back.

Is My Need Temporary?

You need to be honest about whether your need for a cash advance is temporary or whether you need to re-evaluate your business plan. For example, if you are requesting the advance because sales haven't been what you expected, you may need to do some further research to find out if your business is truly viable going forward. If, on the other hand, you were buying extra inventory because demand has been so high, a cash advance can be the perfect way to keep the momentum going.

When you've addressed the questions above, you may decide to go ahead and seek out a merchant cash advance. Talk with a few cash advance companies, such as Fordham Capital, to determine which business would be best suited to your own.