Merchant Capital: What Exactly is it and How Does it Work?

Merchant Capital: What Exactly is it and How Does it Work?

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Merchant Capital


When your business begins to experience growth trends, it can be an extremely exciting time! However, with business growth comes financing needs. Therefore, it’s critical to familiarize yourself with different financing options available at your disposal.


Remember: The type of financing appropriate for your business depends on your needs, your budget, and the repayment terms. While some business owners go right for the traditional bank loan, others understand that there may be a more financially appealing option.


One of those options is merchant capital. However, it is a relatively new model of business financing and the majority of business owners may not even be aware of it.


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What is Merchant Capital?

To some of you, "merchant capital" may sound like a foreign term. Others may recognize it as merchant financing, merchant cash advance, or just cash advance. Essentially, merchant capital is simply working capital advanced to business owners for financing purposes. Lenders offer an immediate lump sum to the borrower in need. In return, the borrower pays the borrowed money back over time -- in addition to a fee.


How Does Merchant Capital Work?

While this may sound a lot like a traditional business loan, here is where it differs: In order for the lender to collect repayment from the borrower, they take money from the business’s future sales.


With merchant capital loans, you’re agreeing to let the lender automatically deduct a predetermined percentage of your business’s daily sales. This percentage is your repayment until your merchant capital lender gets paid back in full.


While you may not be ecstatic about giving up a percentage of each sale, this can be beneficial to certain businesses. For example, it may take a seasonal business longer to repay a loan, but they are not forced to come up with money during the offseason.


The Bottom Line

Many businesses have found great advantages to merchant capital loans. Many organizations find it very convenient for their unique situation. Click here to sign up for a free consultation to see which types of loan products will work for your business.


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Topics: merchant capital, business loan, working capital

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