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How SMEs Get Benefits from Merchant Cash Advance

Posted on
Sep 17, 2021
How SMEs Get Benefits from Merchant Cash Advance


To survive in the competitive market, the small business owners in every sector need financial assistance at frequent intervals at the initial level. To arrange that financial assistance, small business owners have to struggle to convince banks and financial institutions to get business loans approved at a low business loan interest rate. The reason is that being new in business, SMEs do not have many strong credentials to prove their creditworthiness in front of lenders. At times of quick financial assistance, Merchant Cash Advances would be the best MSME business loan.

What are Merchant Cash Advances?

A Merchant Cash Advance is a line of credit loan an SME can avail against the debit card or credit card sales available in their merchant account. Whenever any merchant applies for a loan, the bank or financial institution disburses a lump sum to the merchant’s account. Using the Merchant Cash Advance, an SME can easily fulfil all its immediate financial requirements. As far as repayment of the loan, it is automatically done when any transactions take place through PoS machines available at the merchant outlets. The best part about merchant cash and capital is that it is disbursed in 2-3 days at the latest.

All a lender looks at before approving a Merchant Cash Advance loan is the POS transaction history. It helps the lender in knowing the risk associated with the lending. Once the Merchant Cash Advance loan is credited to the borrower’s account, all the money earned through POS machines is redirected to the lender’s account till the whole repayment of the loan is made from the borrower’s side.

How do Merchant Cash Advance Loans Work for SMEs?

Digital India Drive opens the door to great business opportunities for businesses in India. Many small business owners are getting payments from clients either on their credit cards or debit cards. For many SMEs, Merchant Cash Advance financing works as getting cash in advance from lenders for the services they are rendering to their clients. Merchant Cash Advance companies evaluate borrowers’ creditworthiness by taking out the average income earned monthly through POS machines. It is certainly one of the best MSME loans for new businesses.

Eligibility Criteria to Apply for Merchant Cash Advance Loan

The eligibility criteria to apply for a Merchant Cash Advance loan varies from one lender to another. Here, we discuss the essential eligibility criteria that every bank and financial institution follows for granting business cash advance loans to SMEs in India.

  • Must have a good credit score, i.e., 750 or above
  • Must be a resident of India
  • The minimum monthly transaction requirement through POS Machines is Rs 50,000
  • Strong and positive track record of the business in the past
  • Annual turnover of SMEs in the recognizable range set by the lending institution
  • Must be having a valid KYC document and latest ITRs at the time of applying for Merchant Cash Advance loans
  • Availability of a POS machine at the merchant store; it is a loan against POS
  • Must be having a record of a minimum of 6 months of debit card and credit card swipes

Documents Required to Apply for a Merchant Cash Advance Loan

Valid KYC documents

PAN Card, Passport, Aadhaar Card, Electricity Bill, Driving License, etc.

Business proof

  • Rent agreement or ownership agreement of the business premises
  • Business License
  • GST Registration

Annual turnover proof

  • Latest GST Return of past one year
  • Latest Bank statements of current POS machines
  • Records of Existing loans and current loans with their repayment history

Business financial documents

  • Income Tax Return of latest two years
  • Profit & Loss Account
  • Balance Sheet

Repayment Methods of Merchant Cash Advances

  1. Split Withholding: The sale amount earned through POS machines is divided into two equal parts. One is the lender’s account, and the other is the borrower’s account. The monthly earnings are equally divided in both accounts. It is the automated and hassle-free procedure of making Merchant Cash Advance repayment.
  2. Trust Bank Withholding: If the borrower opts for this repayment procedure, then the total monthly earnings will be credited to the account to the lender until the agreed repayment takes place. In case excess earnings take place, they will be credited back to the borrower’s account.
  3. ACH Withholding: Under this repayment procedure, the amount received in the POS machine will be credited to the lender’s account. It is the pre-agreed amount decided between lender and borrower. The access amount received by the lender will be credited back to the borrower’s account.

Features and Benefits of Merchant Cash Advance Loans for SMEs

Easy application

The Merchant Cash Advance is one of the best SME business loans in India. They are easy to apply for offline and online business loans and come with minimal business loan eligibility criteria and documentation. Within 2-3 days, the loan amount gets disbursed in the borrower’s account. Many online lenders may offer same-day disbursal of Merchant Cash Advances.

Collateral-free Business loans

One of the biggest advantages of SMEs is that there is no need to give any collateral against the loan. All that is required is a good POS machine with a good repayment history. The lenders do not ask for any other assets to become eligible for Merchant Cash Advances. As small business owners, it is difficult for them to arrange collateral.

No set payment amount

By now, it is evident that a Merchant Cash Advance is not a loan. It is only like getting cash in advance. So, there are no monthly EMIs and defined repayment terms associated with the loans. Both SME and lender mutually agree on a future amount deduction from POS machine sales to repay loans. It is like sharing future earnings with the lender.

No penalty on loan foreclosures

It is one of the best benefits of Merchant Cash Advance loans to SMEs if the borrower has made a good sale at POS machines and is in a position to return the money borrowed in full. They can repay the amount at any time; there are no prepayment penalties associated with the Merchant Cash Advance loans.

Easy access to funds

The time taken in getting Merchant cash approvals is less. It is granted quickly and is multipurpose. You can use the amount the way you want.

Works well for those with no credit

If anyone is looking for a way to build a good credit history, especially SMEs, applying for merchant cash loans works as the best solution. Here, you are not taking a loan against the POS machine. It is like getting cash in advance for profits you are going to sell in the future. So, the chances of missing payments and defaults are less, one of the easiest ways of building up a good credit history.

Bottom Line

For SME owners, especially start-ups, the primary issue is arranging sufficient cash flow to deal with financial emergencies. But in this digital India era, Merchant Cash Advance companies make business operations smoother for SMEs. FlexiLoans is known for offering online instant business loans at the best interest rate.

Frequently Asked Questions

Can I save interest if I repay the loan quicker?

No, you cannot save interest if you repay the Merchant Cash Advance before the tenure ends. The interest on the whole amount is defined at the initial level only, which is mandatory to pay.

Does the Merchant Cash Advance loan offer a zero interest rate facility?

No, you have to pay interest on the Merchant Cash Advance loan.

Are Merchant Cash Advance loans collateral-free?

Yes, it is the best part about availing of the Merchant Cash Advance loans. All it requires is a good transaction history of POS machines to get the Merchant Cash Advance loan. There is no need to give personal assets to the lender against the loan. It is a loan granted against credit card and debit card sales. As the mode of repayment is also the sales earned through POS machines.

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