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that a business be in operation for a significant period of time in order to receive financing. The required operating time varies from company to company, but typically ranges from 3 to 6 months. Cash advance companies will further require a minimum amount of credit card sales per month, usually around $2,500- $3,000.

WHAT ARE THE BENEFITS?

This method of financing comes with several benefits that are particularly attractive to small businesses.

Unlike banks loans, there are no closing costs or upfront fees. In addition, there is usually no fixed timeframe for repayment of the cash advance; the deductions will just continue until the total balance has been repaid.. There is also no worry about making scheduled payments during periods of slow sales.

As mentioned above, this method of financing has the benefit of a quick approval process that requires very little preparation or paperwork, and since financing is based on future sales, credit and sales history are generally not a factor for approval. A cash advance also comes with no restrictions on the use of the money.

WHAT ARE THE DRAWBACKS?

One of the biggest drawbacks to financing with a merchant cash advance is that the cost of borrowing money is always going to be higher than getting a traditional loan. One can expect to be paying about 30% on the money received. These products should also be used responsibly. Applicants should make sure that they are clear with the company's terms and conditions, that the payback rate remains fixed, and that they can afford it. (If a business is operating on a sales margin that is less then 10%, then a cash advance is probably not a good option)

Though the majority of applicants receive approval for financing, a business must already be in operation (start-ups are generally not funded) and have a history of processing a significant amount of credit card sales per month.

Learn more about this author, Simi Brown.
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