10 things you need to know about merchant cash advances

You may be a business owner with a struggling business and are probably looking for options to save your company from going down. The merchant cash advance option may have come to your mind but probably don’t have enough information. This article is dedicated to giving you useful information and taking you through a couple of important points.

1.  What is a merchant cash advance?

 

Merchant cash advance

Merchant cash advance

The merchant cash advance financing is a financing option that involves the loan of a certain amount of money into a business by merchant cash advance providers in exchange for future credit card and/or debit card sales. It is a financial plan that small businesses take up. Merchant cash advances help them get quick cash which their businesses need. In exchange, they sell a part of their future sales to the merchant cash provider. This means that if the business makes a sale, the sale is divided between the business and the provider company.

    The terms are agreed between the two parties but the cut is usually between 10-25% of the credit card sale going to the company while the remaining goes to the company. This becomes an easy way for the business to inject cash flow into its operation and then pay back as they continue conducting business.

2. Functions of merchant cash advances

 

A merchant cash advance is used by the business for all sorts of reasons. The business may decide to use the cash to pay their employees or repay a debt. Other businesses may use the cash advance for advertisements or fund a promotion campaign. Other uses may include the production of more inventory and stocking up products. 

The merchant cash advance is a helping hand for business owners during difficult financial situations. The cash advance becomes a quick solution for these problems.

3. Merchant cash advance is NOT a loan

 

Merchant cash advance is not a type of a loan. It is described as an exchange of cash the future credit card or debit card sales. It is not considered as a loan and thus treated differently. That is why merchant cash advance providers say that they are not regulated by the loan and interest legislations that have been put in place. Hence, the interest rates could go higher than you are normally used to. Another difference is that since it is not a loan, the interest rates are not calculated by the annual percentage rate. They are calculated according to the factor rate of the business.

4.   Fast approval

 

Fast approval

Fast approval

Merchant cash advance is processed within a short period of time. With all necessary documentations and credentials, a merchant cash advance could be approved within 24 hours. The deposition of the money into the business account may take up to a week. This is considered very fast compared to traditional loans which have to go through a series of processes before they approve your loan. A merchant cash advance gives you the fast cash for your business. Thus, it is very attractive to small business owners.

5. Pros of the merchant cash advance

 

Pros of merchant cash advances

Pros of merchant cash advances

A merchant cash advance has many advantages that attract a lot of people. They include the approval time z and the credential factor, among others

  •  A merchant cash advance does not require many credentials to apply. It’s all about the business and not about the individual. Thus there is nowhere the credit score of the proprietor of the business is in question. The plan solely deals with the business and not the owner.
  • The approval time for a merchant cash advance is just lessee than most other loans in the market. It takes a minimum one week to get the merchant cash advance for your business. It’s why merchant cash advances have become so popular.
6. Cons of merchant cash advances

 

The plan definitely comes with a few drawbacks which you have to be careful of. The drawbacks mostly affect the interest rate of this plan. The plan doesn’t have an annual percentage rate as it is not classified as a loan. It all depends on the factor rates. This means the rate of interest cannot be controlled. There is an important aspect which you may need to know. The percentage cut that is paid to the company for every sale is not the same as the interest rate. They are two different things and the charges are different band have to be paid. This may cause confusion for the business owner and thus cause frictions in the future.

7.  Other factors

 

This sort of financial plan is has a special characteristic. The amount of money from sales that are going to the company varies. This means you cannot plan for the money that is going to be paid from your business to the company. This plays a con card in this case. However, this characteristic has a flip side. This is because since the cash is not specified, it means that you are not affected as a business when it comes to the low season of your company. There is no specific amount of cash that is specified that your business has to earn each month. Thus, the merchant cash advance company will get paid when you make sales. This relieves your business from the pressure of having to attain a certain amount of sale each month.  

8. Company specifications

 

different companies will come up with different offers

different companies will come up with different offers

In order to attract businesses into their plans, different companies will come up with different offers for your businesses. Thus, you will have to a lot of companies offering merchant cash advances but are customized in different ways to suit different businesses. The key is always to take the plan that works well for your company. It’s all about looking at works with your budget and your sales projections.

9. No collateral involved

 

Merchant cash advance companies don’t need a collateral as this is not a loan. It is an exchange of future sales for a merchant cash advance. This, collateral becomes irrelevant. It’s all about the agreement put in place when the application of the MCA  was done.

10. Bottomline

 

It’s all about choosing what works for your business. This plan is very attractive as it’s very simple to understand. However, it has the downside of having very high- interest rates. However, if you can couple with them it’s a plan that could go a long way in making your business a success. It’s all about perspective; what you make of the plan.

How will you repay the principle one day?

Taking a loan may be an easy and fast process. However, if you fail to plan how you will repay it, you are going to have a hard time. Financial planning and management goes a long way in ensuring that you have a good financial position and that you are able to clear debts in the shortest time possible.

An endowment mortgage is defined as a loan arrangement in which the borrower pays interest only to the lender while the installments of the principal are paid into a life insurance policy. The maturity date of the policy is similar to that of the mortgage. These plans are usually run for a period of 10 to 25 years.

An example of this is when a borrower has an interest only mortgage valued at $200,000 for 15 years, they are expected to pay the interest on the amount borrowed each month. The full amount of the principle, which is $200,000, is expected to be paid at the end of the term of the mortgage.

  • Paying off the loan as soon as it matures

Repay the principle as soon as it matures

Repay the principle as soon as it matures

The main aim is repaying the principle. And it is not simply paying it off, but doing so within the soonest and the shortest period of time possible. Therefore, a lot of sacrifice and discipline will be required so as to meet this goal. Note that the value of the principle will decrease over a period of time. This is due to inflation.

As a borrower, you should make arrangements on how you will save up the money so as to pay off the loan when it matures. The lender plays no role in making loan repayment programs. You may pay off the principal in the following ways:

  • Frequent savings

You may have a standing order placed on your account so as to instill a sense of saving discipline. You may direct your banker to send money frequently from your checking account to a savings account. The amount of money that you pay towards your loan may be increased. This is possible if you have some disposable income after settling your monthly expenses.

  • Extra cash flow

If you happen to receive an annual bonus or an income tax refund, this extra source of income can be used to cover the loan repayment.

  • Investing in income generating business

Proper use of your money involves investing it in high return ventures. These profits will give you an extra source of income and such cash flow will enable you to have more ability to pay off the principle.

  • Inheritance and gifts

Inheritance & gifts

Inheritance & gifts

If you are lucky enough to receive gifts or inheritance, you will be able to use this to pay off the principal.

Proper planning ensures that you will be able to pay off your loan when it matures. With this, you will avoid less attractive options such as extending the mortgage term, remortgaging or downsizing.

As the loan repayment is an expense that you are aware of, good planning ensures that you will not be overwhelmed when the payment is due. As windfall payments such as inheritances or bonuses are not a sure thing, your efforts during the mortgage will go a long way in securing your finances, and even your home and other assets, when the mortgage is due.

How To Declare Bankruptcy

Bankruptcy is the legal status of an individual or an entity, in which they are not able to pay the debts that they owe to creditors. Although bankruptcy is declared by court orders, it is an individual who initiates the process. In the United States, bankruptcy cases are handled by the federal courts. Such cases are guided by the rules under the U.S. Bankruptcy Code. So, how do you declare bankruptcy?

Declare bankruptcy

Declare bankruptcy

As an individual, you qualify to declare bankruptcy under Chapter 7. However, so as to qualify for bankruptcy under Chapter 7, your income should be below a given level. So as to pay off your creditors, your property may be liquidated. If you had borrowed secured loans, the options you will have are to pay the creditor an amount which is equal to the current value of the property, allowing the property which you used to secure the loan to be repossessed or to have the secured debt eliminated.

Steps for Filing Bankruptcy     

               

  • Find out if you qualify

This is the first step that you need to take if you wish to file for bankruptcy. You should qualify for bankruptcy under the conditions stated by law. As earlier stated, your income should be below a given level. Thus, if you still have some income left after paying off your monthly expenses, you will then have to file for bankruptcy under Chapter 13.

  • Fill the bankruptcy forms
Fill the bankruptcy forms

Fill the bankruptcy forms

The bankruptcy forms are downloadable from the U.S Court’s websites. They are a large number of forms, where you are required to fill in your incomes and expenses, properties and debts in full detail. Do note that if you fail to list a debt, it will not be discharged after being declared bankrupt. This means it will continue after bankruptcy.

It is recommended that you fill the forms with the assistance of an attorney. However, should you may decide to fill the bankruptcy forms without the help of an attorney (pro se), the non-attorney prepares may assist you with the paperwork.

  • Receiving a bankruptcy trustee

After filing for bankruptcy, a trustee will work on behalf of you towards your creditors. This trustee is assigned to you by the courts. The trustee determines the property that you get to keep as well as ensuring the verification of the information that you filled out in the bankruptcy forms. The trustee is also tasked with liquidating non-exempt property. However, this is under the guidance of the rules which dictate which property is exempted from liquidation. These rules vary from State to State and thus it will greatly depend on the State you are in.

  • Credit counseling and debtor education

As an individual filing for bankruptcy, you are expected to receive credit counseling as well as debtor education. Before filing for bankruptcy, you are to get credit counseling, whereas after you are declared bankrupt, you should receive debtor education. Before the debts are discharged, you are expected to present the Certificates of Completion to prove that you have undergone credit counseling and debtor education. However, ensure that you undergo these with agencies approved by the Department of Justice.

  • Attend the 341 meeting                                                                                

This is an official meeting that is held with the creditors at your trustee’s offices. Its name refers to section 341 of the Bankruptcy code. You are expected to state why you are filing for bankruptcy and answer questions related to your debts. In this meeting, arrangements related to the property that was secured as collateral as well as selling off your non-exempt property are made.

  • A permanent orderBankruptcy discharge

After this, you may be awarded with a bankruptcy discharge. This is a permanent order that legally makes you to no longer be liable to creditors. Thus, they should not take any legal action against you or communicate to you with regards to the debt. The bankruptcy discharge may be expected to take effect 60 days after you, your trustees and creditors hold the first 341 meeting.