Lendio is an online marketplace that facilitates loans for small businesses, including merchant cash advances. As a small business owner, you know that you always keep a close eye on your cash flow versus your accounts receivable. It’s great to have many sales, but you need to get paid for those sales to keep up with your daily and weekly expenses. From payroll and rent to supplies and products, you owe a lot of money every week and month. Sometimes, you find yourself in a position where your cash flow doesn’t meet your outgoing expenses, and when this happens, you need an infusion of funds immediately.
Various small business loans can help, but you need to find the right option for your company. One short-term loan option may be a merchant cash advance. In case you are not familiar with this business funding option, here’s everything you need to know about how a merchant cash advance loan and how you can easily apply one through Lendio.
What Is a Merchant Cash Advance Loan?
When you secure a merchant cash advance loan, you receive immediate cash to pay your bills, but you pay it back through your daily credit card sales. You and the lender agree on a percentage of your daily credit card sales to repay the loan. You pay that percentage each day directly from the credit card sales to the lender until the full amount and interest are repaid.
It’s a fixed interest rate, so it doesn’t matter if you pay it back more quickly because you pay the same amount of interest no matter how long repayment takes. In many cases, the repayment goes directly to the lender from the credit card processing company, so you don’t need to worry about sending them money daily.
You can use the funds you receive for a variety of reasons. Some merchant cash advance loans can take as long as two years to repay, and depending on your company’s daily credit card sales, and you may be able to borrow up to $200,000.
How Does a Merchant Cash Advance Work?
You understand that a merchant cash advance depends on your daily credit card sales, but how does the lender get their money back? There are three common ways that the lender receives repayment, including:
- ACH Withholding: When your lender receives a statement of your daily credit card sales, they schedule an ACH deduction that removes the agreed-upon percentage from your company’s checking or saving account.
- Split Withholding: This is the most common way that merchant cash advances are repaid, and it’s sometimes also called split funding. When you opt for this repayment option, your credit card processing company splits the payment for daily sales between you and your lender each day.
- Trust Bank Account Holding: It’s also referred to as a lockbox arrangement. In most cases, you end up waiting an extra day for your credit card sales. When your credit card processing company processes your daily sales, they send the money to your lender, who takes their percentage and then sends you the difference through wire transfer, ACH payment, or EFT.
Depending on the lender you choose, you may have a choice in how you want to repay the funds. You want to choose the best option for your company.
What Can You Use Merchant Cash Advance Funds For?
You probably can’t secure a merchant cash advance when you want to use the funds to take a Hawaiian vacation; however, there are many reasons that you might need a merchant cash advance loan. Many merchant cash advance funds are used to shore up cash flow issues. They aren’t usually used to grow your business or invest in new equipment. Here are some of the most common uses of merchant cash advance funds:
- Rent or mortgage
- Pay for new supplies
- Pay utility bills
- Emergency equipment repairs or replacement
- Pay past-due account receivables.
This type of loan is considered a short-term loan, so it wouldn’t typically be used to invest in the business with new equipment or expansion. If you’re looking to invest in your company, you might consider a long-term small business loan.
How to Avoid Merchant Cash Advance Fees
As a business owner, you don’t want to spend any more money than you absolutely need to in fees for a small business merchant cash advance or any type of loan. So how do you avoid or lower these fees?
One of the best ways to lower your fees is to get a lower interest rate. You can do this by maintaining a good credit score and healthy business. Your interest rate is based on how secure the lender feels in loaning you money and know they’re going to get it back on schedule. If you have a low credit score, you can use a merchant cash advance to begin raising that rating.
Another way to avoid or lower merchant cash advance fees is to shop various lenders. Lenders are competing for business just like any other company, and some may offer a discount or lower interest rate when you choose to borrow from them.
You can also save money on fees by only borrowing the money you need and know you can repay. It may be tempting to borrow extra funds, but you’ll pay fees on that additional cash.
How to Get a Merchant Cash Advance With Lendio
To get a merchant cash advance with Lendio, you begin by filling out their online application. You’ll need to provide basic information about yourself and your company. The application inquires about the reasons you need funding and your daily sales.
As part of the application, you may need to upload some documentation, such as:
- Photo of your id
- Business license
- Bank statements
- 4 to 6 months of statements from your credit card processing company
Before filling out your online application, it’s a good idea to determine exactly how much you need to borrow and how much you can comfortably afford to pay back so that you don’t end up in a worse position in a few months. After submitting your application, you can review your options and select the best one for your needs to get your funds as soon as 24 hours after approval.
Lendio’s team will support you through the whole process; they can also advise you on other types of business loans, like:
- SBA Loans
- Short-term loans
- Business Lines of Credit
- Term Loans
- Equipment Financing
- Commercial Mortgages
- Accounts Receivable Financing
- Start-up Business Loans
- Business Acquisition Loans
A merchant cash advance loan can help you solve urgent cash flow issues. The repayment methods differ from traditional loans and can reduce the time you spend sending payments. For a small business, a merchant cash advance might be the best solution. Easily apply today with Lendio.