Are you a small business owner who is thinking about taking a cash advance?

Three Signs That a Merchant Cash Advance Is a Good Option

1. Other Forms of Financing Have Been Investigated
   For example, for a small business owner who owns a paid-off house, a home equity line of credit at a very attractive interest rate is a superb choice. Such a person probably wont want to bank on a merchant cash advance, because they can get money cheaper elsewhere. Sometimes, even credit cards can be less costly than a merchant cash advance. However, one big advantage of a merchant cash advance is that its not a pure loan. The merchant cash advance company is in essence investing in another business--a cut of the action, so to speak.
2. Lots of Credit Card Payments

   Anytime anybody gives anyone else money, theyre likely to want to be paid back, with interest. Merchant cash advance companies are no different. The way a merchant cash advance company gets paid back, however, is different: through the credit card processing system placed at the small business. So that thing needs to be ringing regularly. If a small business credit card machine stays quiet most days, a merchant cash advance is not the right solution for that small business. Many merchant cash advance companies will have a specific monthly number of credit card transactions before they will extend the advance, but the small business owner should also self-select by understanding the merchant cash advance system, which is based on credit card transactions.

3. Bad Credit, Good Business
   Not every small business owner has a perfect credit record. Owning a small business entails risk, and risk is not always rewarded. Then, one day, it is rewarded, and a small business is humming and is ready to expand. But when the owner goes down to the bank for a small business loan, current success is sometimes discounted. They bank is more concerned with three late credit card payments from five years ago. Merchant cash advance companies take a much more pragmatic approach. Is the business going to sell enough stuff within the next six months to pay back this advance? If this seems likely, so is approval.

Look Before Leaping
Small business loans are extremely tough to obtain right now. The banks are hurting and risk-averse. Merchant cash advances can be a great option, even the only option, for many small businesses in need of funds. However, its essential to go into the arrangement with open eyes.

To start, test the suitability of a merchant cash advance by the three criteria listed above.

Sources:
Bennett, Elizabeth; Tiku Natasha. Thanks, But No Thanks. Inc. Magazine. April, 2008.
Burnsed, Brian. When Small Biz Cant Get a Loan. Business Week. May 8, 2008.