One thing about merchant cash advances is that they are probably not going to be helpful during an economic downturn. They may even be impossible to get during a recession. But in a better economy, they are a proven way to fund a business and keep your doors open.
What Are Merchant Cash Advances?
You can get money for your business quickly by borrowing against your future credit card sales. This type of financing is known as Merchant Cash Advances.
How Do These Loans Work?
These loans use your past and current credit card history to determine how much financing you can get approval for.
Money is advanced to you. The amount has a basis in how much you process each month in credit card transactions.
How Do You Pay Merchant Cash Advances Back?
There are no fixed repayment amounts or terms. So this gives flexibility to your business if you are having a slow month.
One of the best benefits of merchant advances is you can get money in your bank account. So you can get it as soon as 24 hours after approval.
Why Are Merchant Cash Advances So Great?
Another great benefit of merchant loans is you do not have to have good credit to qualify. These loans leverage your positive credit card processing history to get you approval, not your credit scores.
There are some credit score restrictions, but in most cases you can get approval with even below average personal credit scores.
And there is no personal guarantee necessary. Plus, no collateral is necessary.
How Much Can You Get from Merchant Cash Advances?
You can get merchant loans for up to $150,000. How much you process in credit card transactions each month will determine how much you will get approval for.
So, every business has its strengths and weaknesses.
Do you use credit cards as a payment source for your clients? If so, then a merchant advance can be the perfect way for you to get a lot of money in a short period of time.
These loans are available for businesses that process as low as $3,500 monthly in credit card transactions. So the more you process, the higher advance loan you will get approval for.
What Are the Fees for Merchant Cash Advances?
So there are no application fees and no out of pocket costs.
And you can use the funds for payroll, marketing, or to increase business inventory. Get a loan to pay taxes, pay rent, or for advertising. So, try a loan to order supplies and equipment. Or you can expand your business and open an additional location. Or you can use the funds for working capital.
An Alternative to Merchant Cash Advances – Building Business Credit
Company credit is credit in a small business’s name. It doesn’t link to an entrepreneur’s personal credit, not even if the owner is a sole proprietor and the only employee of the company.
As a result, an entrepreneur’s business and personal credit scores can be very different.
Because small business credit is distinct from consumer, it helps to protect a business owner’s personal assets, in the event of litigation or business bankruptcy.
Also, with two distinct credit scores, a business owner can get two different cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startup businesses can do this. Visiting a bank for a business loan can be a recipe for frustration. But building company credit, when done right, is a plan for success.
Consumer credit scores depend upon payments but also additional considerations like credit usage percentages.
But for business credit, the scores actually merely hinge on if a company pays its debts on time.
Establishing small business credit is a process. It does not happen automatically. A business needs to proactively work to establish small business credit.
Yet, it can be done readily and quickly, and it is much speedier than developing consumer credit scores.
Merchants are a big component of this process.
Doing the steps out of order leads to repetitive rejections. No one can start at the top with small business credit.
A small business needs to be fundable to loan providers and vendors.
That’s why, a business needs a professional-looking website and e-mail address. And it needs to have site hosting bought from a vendor like GoDaddy.
Also, business phone numbers need to have a listing on 411. You can do that here: https://www.listyourself.net.
In addition, the business telephone number should be toll-free (800 exchange or comparable).
A business also needs a bank account devoted solely to it, and it must have all of the licenses necessary for operating.
These licenses all have to be in the perfect, appropriate name of the business. And they must have the same small business address and phone numbers.
So note, that this means not just state licenses, but potentially also city licenses.
Visit the IRS web site and get an EIN for the business. They’re free of charge. Pick a business entity like corporation, LLC, etc.
A business may begin as a sole proprietor. But they absolutely need to switch to a sort of corporation or an LLC.
This is to minimize risk. And it will make best use of tax benefits.
A business entity matters when it concerns taxes and liability in case of litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. No one else is responsible.
The best thing to do is to incorporate. You should only look at a DBA as an interim step on the way to incorporation.
Setting off the Business Credit Reporting Process
Begin at the D&B website and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a company into their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s sites for the small business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.
In this way, Experian and Equifax have activity to report on.
Starter Vendor Credit
First you should build tradelines that report. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can start to get credit for numerous purposes, and from all sorts of places.
These sorts of accounts have the tendency to be for things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are generally Net 30, rather than revolving.
Hence, if you get an approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, like within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. In comparison with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To kick off your business credit profile the proper way, you ought to get approval for vendor accounts that report to the business credit reporting bureaus. When that’s done, you can then use the credit.
Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Vendor Credit – It Helps
Not every vendor can help in the same way true starter credit can. These are vendors that grant approval with a minimum of effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Monitor Your Business Credit
Know what is happening with your credit. Make certain it is being reported and address any mistakes as soon as possible. Get in the habit of taking a look at credit reports. Dig into the specifics, not just the scores.
Fix Your Business Credit
So, what’s all this monitoring for? It’s to challenge any inaccuracies in your records. Mistakes in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.
Disputing credit report inaccuracies usually means you precisely spell out any charges you challenge.
A Word about Building Business Credit versus Merchant Cash Advances
Always use credit smartly! Never borrow beyond what you can pay off. Monitor balances and deadlines for repayments. Paying on time and in full does more to raise business credit scores than pretty much anything else.
Establishing company credit pays. Great business credit scores help a company get loans. Your lender knows the business can pay its debts. They know the small business is authentic.
The business’s EIN connects to high scores and loan providers won’t feel the need to demand a personal guarantee.
Takeaways for Merchant Cash Advances
Merchant cash advances are a creative way to leverage future sales. They can help your business get past a financial hurdle. And don’t forget about building company credit! Because even when business cash advances are hard to get, you can build business credit.