Officially known as merchant cash advances, the advances help businesses-typically those that receive frequent credit card payments-receive the start up or expansion money they need when they don’t meet the requirements for a bank loan: excellent credit and sizable collateral. What’s more, the advances don’t have the terms of a traditional loan; instead of having set payments over a certain period of time, they’re granted in exchange for a certain percentage of a business’ sales. That means if you earn $20,000 in your first month, about $6,000 of it might go toward repaying what you owe.
Merchant services that offer advances collect their money by taking a set percentage from a business’ credit transactions. The percentage varies by merchant service, but 30% or lower is usually sought after, though services that charge more still help businesses achieve something they couldn’t without an advance: open their doors and start a customer base that will still be there after the advance is repaid. In most cases, an advance is repaid within 12 months.
Advances are granted under the auspices of business advancement, an end to which numerous things could contribute. Currently, many businesses use their advance for some of the following expenses:
1. Green improvements. Improving your building’s energy efficiency can drastically reduce its annual utility bills. According to energy efficiency research, an interior lighting retrofit alone could reduce its annual electric bill by 30%.
2. Expansion. Whether you wish to expand at your current location or start another location, merchant services can give you the money you need to stop planning to succeed and actually do it.
3. Renovations. If your building is aesthetically compromised, the appearance could impact how customers perceive your offerings. Cash from a merchant service could give your business the facelift it needs to keep up with competitors.