Small to medium-sized businesses may rely on credit card sales to generate revenue and keep their operations running smoothly. At times, waiting for the funds from credit card transactions to become available can create a strain on cash flow. That’s where CC split advances come in – an innovative financial solution that allows businesses to turn their processing into a lump-sum advance.
What is a CC Split Advance?
A CC split advance is a financing option offered by select financial institutions or alternative lenders. It enables businesses to receive a lump sum of money based on their future credit card sales. The process is straightforward: the lender provides the business with an upfront payment, and in return, the lender receives a percentage of the business’s future credit card sales until the advance, plus fees and interest, is fully repaid.
How does it work?
Let’s say you operate a retail store and have an average monthly credit card sales volume of $50,000. You approach a lender for a CC split advance, and they offer you an advance of $30,000. In return, the lender may agree to receive 15% of your future credit card sales until the advance, plus fees and interest is repaid.
As you process credit card transactions, a predetermined portion of each sale will be automatically deducted and sent to the lender. This continues until the advance is fully repaid. For instance, if a customer makes a $100 purchase at your store, and your agreement with the lender stipulates a 15% split, $15 would go towards repaying the advance, while the remaining $85 goes into your business account.
Advantages of CC Split Advances
Immediate Access to Cash
CC split advances provide businesses with quick access to working capital. This infusion of cash can be used to cover immediate expenses, invest in growth opportunities, or manage unforeseen emergencies.
No Fixed Repayment Schedule
Unlike traditional loans, credit card split advances do not come with a fixed repayment schedule. Instead, your credit card sales link to the repayment of the advance. This flexibility can be a major advantage for businesses with fluctuating revenue streams.
No Collateral Required
CC split advances advance without the need for collateral, so you don’t have to provide any security for the financing. This is particularly beneficial for SMEs that may not have valuable assets to pledge.
Credit Score Flexibility
Since CC split advances are based on future credit card sales, lenders place less emphasis on the borrower’s credit score. This opens opportunities for businesses with less-than-perfect credit to access much-needed financing.
The repayment structure of CC split advances aligns with your business’s revenue stream. During slower periods, when credit card sales are lower, the repayment amount decreases accordingly. This ensures that your business doesn’t struggle to meet fixed monthly payments, thus avoiding any burden.
Considerations and Limitations
While CC split advances offer numerous benefits, it’s important to consider a few key factors:
Higher Costs: Credit card split advances generally come with higher costs compared to traditional loans. The lender charges fees and interest on the advance amount, making it important to carefully evaluate the total cost of borrowing before committing.
Limited to Credit Card Sales: Since CC split advances rely on credit card transactions, businesses that primarily accept cash or checks may not be eligible for this financing option. It’s crucial to ensure that your business’s revenue stream aligns with the requirements of a credit card split advance.
Choosing the Right Lender: As with any financial product, it’s important to research and select a reputable lender. Look for lenders with transparent terms, fair rates, and a track record of providing excellent customer service.
CC split advances offer a valuable financing solution for businesses that rely on credit card sales to generate revenue. By converting future credit card transactions into an upfront lump sum, businesses can bridge cash flow gaps, seize growth opportunities, and meet immediate financial needs. As with any financial decision, it’s crucial to thoroughly assess the terms, costs, and suitability of a CC split advance before moving forward.