What Is a Merchant Cash Advance?

One of the many financing options available for your company is a cash advance. Merchant cash advances are often used to get working capital quickly to businesses to help cover slow periods, fund growth projects and much more. Before you take out one of these advances, it is a good idea to know some of the basics, agreements and processes that are included.

The Basics

A cash advance for merchants is not a loan, so there are fees instead of interest rates and your business credit history is not affected by this financing option. Instead of borrowing money, you are selling a percentage of your future credit card transactions for cash now. The advance is paid back automatically with the agreed upon percentage of transactions being debited from your company bank account each day. So, if you have agreed on a ten percent holdback on your advance, then every day your account will be debited ten percent of total card sales. On days that you do less sales, your account is debited less. Most providers will charge a fee or factor rate of twenty to forty percent, so you will end up paying more back than the original advance at the end of the term.

The Agreements

Before the money from merchant cash advances hits your account, you will need to make some agreements with the provider such as how much will be advanced, what the payback will be and what the holdback percentage will look like. You can shop around to different providers to get the best deal, but it is important to look at things like the experience each provider has in your industry, what references say and how long the provider has been in business to make sure that you are truly getting a good deal.

The Process

Once you have chosen a provider to work with, you will fill out an application and submit banking records. This application is usually online with a secure upload portal so that you can do it all from your office instead of driving around town. You and the provider will then agree to the various terms and conditions, and the advance will be transferred to your account. The holdback will start with the next day’s transactions and continue until the advance and factor rate has been paid to the provider.

Merchant cash advances are a good way to get quick cash for working capital, growth opportunities, and much more for your company. You can find many providers to choose from and have the advance repaid automatically from your daily transactions. Since this is not a loan, you do not have to worry about it impacting your business credit history.


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