How Merchant Cash Advances Work

If you’re a small business owner and you need quick cash for capital uses, one of the options you may have are merchant cash advances. Although this is an industry that started only about 10 years ago, today, more than 50 providers are available to those who need quick capital access. In addition, today’s “belt-tightening” in the credit industry makes this option even more attractive.

Here’s how it works. In exchange for a share of your future sales, a cash advance provider will give you a lump sum payment up front. If you are a small business owner with strong credit card sales, you may qualify, especially if you have little to no collateral or if you have a spotty credit history.

Again, this isn’t necessarily bad, especially if it’s a short-term arrangement you simply have to have to keep your business going or to cover a temporary cash shortfall, but it can get you in the red very quickly if you try to use it as your only capital. In essence, you could sell future profits right out from under you. Therefore, these types of cash advances need to be used very prudently by those who take advantage of them.

Things to remember:

If you decide you want to take a cash advance from a provider, make sure you understand that it is basically a loan with specific characteristics and costs. Now, these companies will say that this is not a loan, and technically, they are right. What they’re really doing is buying future profits from you in exchange for a lump sum percentage of those profits up front. And, again, that’s fine. Just don’t sell your business out from under you by selling future profits to a point where you’re actually going to see little to no profit yourself because you are paying these companies back with your profits.

Second, remember that merchant cash advance companies are not bound by the same rules and regulations that control traditional lenders, and limit the interest rates they can charge you. Therefore, you have to be very careful to read the fine print and make sure you can pay what it’s going to cost you to get a cash advance done this way.


There are advantages to cash advances, too. With a traditional loan (albeit with a lower interest rate and fees), you pay back what you’ve borrowed on a fixed schedule of monthly payments, usually, regardless of what you’re actually earning an income. What you’ve borrowed is paid back commensurate with your business income flow. That means, if you have a slower month, you pay back less; a more profitable month, and you pay back more.

Is this right for you?

It really depends. If your business is usually very solvent and you’re just having a slight cash flow problem temporarily or your business is growing and you need extra cash now, taking advantage of a cash advance company’s services is probably going to help you, especially if you can’t get funding through traditional means. However, if your business is already struggling and you are thinking of using a cash advance to keep you going until things “pick up,” it’s probably not a good idea for you. What will end up happening in that case is that you will simply sell all your profits out from underneath you and will likely never catch up.

Therefore, only use cash advances when you are in a flush and solid position financially already and simply need some extra cash fast for the short term. Done right, they can certainly help you out when things are “just a little bit tight” on a temporary basis.

Checking out cash advance companies carefully.

If you do decide to go with a cash advance company, make sure you check it out carefully. Although industry leaders are trying to cultivate “best practices” strategies so that they remain above board and in full regulation of themselves, many third-party brokers especially may be a bit shady. These people are major sales avenues for the industry, but the cash advance industry itself says that potential customers should be careful. They may not be above board; instead, work with a cash advance company directly.

Here to stay?

With the recent economic downturn, cash advances are becoming an ever more attractive way for business owners to get cash fast when they need it. Nonetheless, even in times of prosperity, they can be useful for already profitable business owners. Used properly, they are a good alternative to traditional lending when that’s not available for whatever reason.

How Can A Merchant Cash Advance Help A Smart Business Owner

Merchant cash advances help business owner’s open doors for better types of funding opportunities. The business cash advance industry is climbing at a continuous rate. This ever increasing growth is because traditional bank loans are not meeting the demands of small business owners.

Business cash advances are a unique funding method. It’s a purchase of future credit card sales, not a loan, so we have to use specific language consistent with purchase of future credit card sales, like payback rate and discount rate instead of commonly used interest rate on bank loans. Merchant cash advances are a lot like factoring but are based on a sale that hasn’t happened just yet.

A business cash advance lender gives business owners a sum of cash advance up front. In exchange, the business owner agrees to pay back the principal amount plus the fee, by giving the lender a daily percentage of their visa and master card sales until the payback is completed.

The daily payback percentage won’t be higher than 10% of daily gross sales, the daily percentage is based on the monthly credit cards sales volume and the amount of cash advance required. The payback time-frame is structured for a 6-9 months term, but it’s not fixed, and there won’t be any penalties if it takes longer.

Business owners usually must switch the credit card processor because the advance is paid back automatically as a percentage of each batch’s proceeds, but the rates will be the same if not better. Just a small number of merchant cash advance lenders don’t require the merchant to change their credit card processors company. Most time this won’t be a problem at all since the rates will be matched.

Business cash advances differ a lot from the traditional bank funding programs. In essence a merchant cash advance lender purchases a small percentage of future Master Card and Visa sales, and the business owner pays back this as a daily percentage of such sales.

Obtaining cash from the bank can be difficult for most business owners, but particularly retail businesses, restaurants, store franchisees or seasonal businesses. These merchants mostly use credit card processing, making a merchant cash advance program a great funding opportunity for them.

What are some of the benefits?

The money is available much faster than it is with a bank loan. Unsecured merchant cash advances are specially a great option for retail and restaurant merchants, not only because these types of businesses can hardly be funded by the traditional bank, but also because of the immediate liquidity and simple process.

Many merchant cash advance lenders advertise that the money will be available in as fast as 10 days, and unlike a bank loan that have a fixed interest rate, as the amount due and due date are fixed each month, no matter if your sales drop. Instead, with a merchant cash advance the payback comes from future credit card receivables, not straining your business cash flow.
Fast merchant cash advance programs are cash flow friendly, during seasonally slow periods specially.

Traditional bank loans require a fixed set of payments every month, whether the business has made a sale or not. But if you choose a merchant cash advance, payments are calculated as a percentage of credit card sales, and if the sales are growing, the re-payment could be quicker, but if the business owner experiences some interruption or sales drop in the business, the payments will drop with it.

Bad Credit Cash Advance Services

Bad credit cash advance services are popping up across the Internet as more people find they need to take advantage of these bad credit cash advance services. The need for bad credit cash advance services is a result of many more consumers finding that they are unable to make their paychecks stretch the way they need them to.

For some, bad credit cash advance services help them through an unforeseen emergency, like an auto repair, an illness, a home repair or some other expense that through their financial planning off and created their need for bad credit cash advance services.

Many people with bad or questionable credit fear trying to get any type of financial assistance because they fear the embarrassment of being turned down. With bad credit cash advance services, however, that fear is eliminated because these bad credit cash advance services are specifically designed for people who may have had questionable credit in the past.

So how are these bad credit cash advance services able to take a risk? The risk taken is a very calculated risk and the interest rates charged by all bad credit cash advance services allows them to take more risks than lenders who lend to people with only pristine credit.

First and foremost, the bad credit cash advance services will be able to review your bank statement to ascertain if you will be able to pay the loan given to you by the bad credit cash advance services before they issue the loan. Further, the payment for these bad credit cash advance services comes immediately out of your checking account on the date of your next paycheck which gives these bad credit cash advance services reasonable assurance that the loan will be paid back on time.

People who have used bad credit cash advance services have expressed a relief that the payments are automatically withdrawn the same day as their paycheck because it gives them assurance that the funds are available to repay the loan and avoid penalties and interest.

Some people who research bad credit cash advance services try to find services that operate quickly both in terms of issuing the loan and withdrawing the funds once it is time to repay the loan – this speed of transaction gives these consumers a much needed comfort level.

Typically, all bad credit cash advance services will state somewhere on their website what their policy is and when repayment is taken. You can then decide if the bad credit cash advance services are meeting your needs in terms of the procedures they use to fund the initial loan and take the payment back.

One common mistake made with people researching bad credit cash advance services is they try to find the website with the biggest $ value posted on it, assuming they will get that $500, $1000, or $1500 wired into their account the next day. The reality is many users of bad credit cash advance services tell us that the first time they use the service they are restricted by how much they can take out in a loan – typically around $500 depending on their income.

Do not get yourself carried away in thinking the bad credit cash advance services will lend you more than your check will be, or lend you the bulk of your next check. The best way to find out is to contact the customer service of the bad credit cash advance services to find out the criteria they use to determine loan amount.