Merchant Cash Advance Information
Overview of a Merchant Cash Advance
For businesses that need to immediately improve their cash flow, a merchant cash advance may be the solution. This is an option whereby a business can obtain cash, often within 24 hours, based on their history of credit card sales.
A very general guideline is that the merchant will receive an advance that is approximately twice the amount of their gross monthly credit card sales. Visa and MasterCard are the traditional cards used for these cash advances but some providers also consider American Express and Discover Card transactions. Although including these two may require a different method of repayment, it may increase the amount of business cash advance that a business can receive.
Merchant cash advances are not loans; rather they are advances against future credit card revenues. Repayment plans and terms vary according to the amount of the advance; monthly payments are according to the dollar amount of the credit card transactions for a particular month, so if business is slow, the payments will be less.
Since the payments are made directly from the credit card processor that the business uses, there is no worry about having enough funds to make the payment or making sure that it is made timely. This is a distinct advantage over a traditional business loan, which may require a high payment even during months when sales are slow.
Particularly for businesses that typically have a difficult time obtaining financing, business cash advances can be a lifesaver for their cash flow or when unexpected expenses arise. Additionally, if the owner of a small business has had personal credit problems or if the business has had credit problems, a business cash advance remains a viable option.
Since business cash advances are not loans, neither collateral nor credit history is a factor nor are any liens and/or judgments against the business. Additionally, business owners are not required to sign personal guarantees.
Traditional business loans require the applicant to spend copious amounts of time to prepare the enormous amount of documentation required. However, a business owner who utilizes a business cash advance may receive the same amount of money but invest a fraction of the time since all the merchant cash advance provider needs is proof of credit card sales for a period of time. This will vary by individual provider, but usually a minimum of three months of credit card sales documentation is required up to a maximum of twelve months.
Usually, there is no application fee and no processing fee, unlike traditional loans, which can incur hundreds of dollars in fees.
Uses and Limitations
Merchant cash advances can be used to purchase a business or for an owner to upgrade, expand or advertise their existing business. There are no stipulations on the usage of the money and the only requirement to qualify is to accept credit cards and have documented sales. Some providers require a minimum dollar amount of credit card sales per month, but that also varies.
Many business cash advances are renewable without an additional application and their approval rate for first time applicants is in excess of 90%, whereas the approval rate for traditional business loans is less than 10% in the current economic situation. Although these advances are sometimes referred to as a merchant cash advance loan or business cash advance loans, this is not technically correct. These advances are not loans but are advances against credit card sales.