Merchant cash advance becomes a viable option for the small business that needs funds for business expansion, operations or any other unexpected expenditure. A merchant cash advance is a lump sum advance amount received by the borrower by selling the future debit/credit card sales at a discounted price which has to be repaid as a percentage of daily sales with interest amount.it is a purchase and sale agreement between the lender and the small business owner.
The merchant cash advance loans are different from that of traditional bank lending, and the approval is based on the volume of the sales of the business both future and past, monthly cash flow and the ability to repay the loan. However, the approval does not focus much on the personal credit history of the borrower and loan rejections. The bank lending needs a collateral as a back-up for the loan, but for merchant cash advance the same is not required. The benefits of merchant cash advance make it a better option for small business owners to avail loans quickly especially during a financial crunch.
The small business should meet two primary criteria for receiving a merchant cash advance; the business should be doing great in debit/credit card sales and the second is that the firm should be an established one for the lender to evaluate your funding partners and repayment ability. The funding partners require details of at least four months of sales activity for them to consider your loan which means start-ups are not eligible for the cash advance. The businesses that are eligible for Merchant cash advance include online stores, franchise operators, food services or restaurants, beauty salons, hotel and motel owners, auto parts and repair shops, retailers and shops; and any other established business that has a significant amount of credit /debit card sales.
It is not right to think that whichever business that has applied for Merchant cash advance and meets primary qualifications will be approved for the cash advance. The approval rate of merchant cash advance is not 100%, and there are chances of cash advance getting rejected for various reasons. Below are the top 3 reasons why the merchants reject cash advances.
Funding partners require the company to be an established one and to be in the firm for a certain length of time. The business which is in a hurry to obtain funds does not pay much attention to this requirement of the lenders resulting in rejection of cash advance. If this is the reason of rejection then wait for some more time till your business is well established to apply for the cash advance and get it approved in no time.
One of the biggest reasons which alarm lender is the overdrawn business bank account which is considered as negative days. Having a couple of these negative days each month in your bank account statement may force the lender to think twice on your repaying ability and can sometimes result in rejection of cash advance. It is advisable to improve finances of the business before applying for merchant cash advance to get approval quickly.
Some funding partners will have a minimum sales requirement set for businesses to ensure that loan is repaid soon as per the agreement. Small businesses that do not meet the minimum gross sales can be rejected of the cash advance applied. Checking with the merchant on the minimum gross sales requirement and reaching the amount before applying for the cash advance will speed up the approval.