A merchant cash advance can be a useful resource for anybody who wants to have large injections of cash flow into their business quickly. However, exiting a merchant cash advance can be a challenge if you don’t know how to do so, and there may be many reasons why you need to try and leave the cash advance behind.
So, let’s take a look at how you exit a merchant cash advance, what this means for your overall success with business going forward, and some top tips for getting out of a situation that was once beneficial to you, but is not anymore.
So, What is a Merchant Cash Advance?
To understand how to get out of a merchant cash advance, we need to make sure that there is no doubt about what one of them is.
A merchant cash advance isn’t technically a loan, but instead, you’re putting up the revenue from future card transactions for a price. It is an innovative product that is relatively new on the market, and it has proven very popular with the retail and leisure sectors. The lender will provide you with a sum of money, which you will then pay back in installments through a percentage of your customer card payments. The repayment is a percentage of each card payment, so it will remain in line with your revenue. The more you earn on your card payments, the more you can pay back and clear your loan.
There are many benefits to this type of financing: it is simple, fast, and flexible. However, it can be a costly option. They are beneficial to a business when the benefits of a loan exceed the cost of borrowing, but after a while, a merchant cash advance can be damaging to your working capital. So there are some ways that you can break this cycle. Let’s take a look.
How to Exit the Advance
So there are a couple of different ways that you can get out of a cash advance. We’re going to look at some of the best ones here to make sure you get what you need.
- The first method of exiting a merchant cash advance is to simply pay off the advance. You can do this by increasing the number of card sales that you make and driving up your profits. If you pay off the cash advance, you are no longer locked into the obligation, so you are free to carry on with business as usual.
- Another good trick that you might have is to replace the cash advance with a low-interest loan. This is called debt consolidation. Basically, a debt consolidation company will collect all of your loans and payments together, pay them all off, and then issue you with a new loan that you pay back exclusively to them, over a period of years. The interest rates are usually capped quite low, and the monthly repayments can be adjusted to suit your individual needs, so it helps to tidy up your loans and deal with unwanted interest rates. Contact a member of our team at Funding Bay to book a consultation and discuss how to help your business.
- Another option that you have is to use back asset loans to pay off the cash advance. Basically, this is where you use a loan that is secured against the assets in order to gather the cash flow required to pay off the advance. This can be a little bit of a gamble because your assets are obviously on the line, but at the same time, if you want to pay back your cash advance, it can be a useful resource to have access to. Funding Bay works with a roster of asset finance lenders, including Ultimate Finance, Aldermore, or Lombard, who can help get you the best asset finance deal. Speak with Funding Bay to be guided in the right direction with asset finance.
- Finally, another option that you do have is to use invoice finance. This is a special type of business that specialises in purchasing outstanding invoices that customers have paid. So, if you want to get your cash immediately, and do not want to wait 30 to 90 days for a customer to pay the invoice, the factoring company will purchase the invoice and then give you the money. They purchase the invoice, collect directly from the customer, and then provide you with what you need as well as money from their own commission, so everybody gets access to their money quicker. Funding Bay works with lenders such as MarketFinance or Hitachi who will be able to provide your business with invoice finance.
Final Thoughts
Ultimately, a merchant cash advance is a useful resource at a time when your business needs fast and flexible funding. However, whilst they are fast and efficient, they are designed to fix urgent cash flow issues, and they are not a long-term fix. The ease and convenience of fast funding can create a debt dependency for business owners, and because of the high cost of a merchant cash advance, they should be used responsibly.
