What are Merchant Cash Advances?

Merchant cash advances are a quick and easy way for your small business to get needed cash fast, often in just a few days. Merchant cash advances are cash payments provided to a business in return for a percentage of future credit or debit card sales. The advance is not a loan but a sale of a percentage of this future income. This alternative financing option is especially attractive for businesses that have difficulty getting traditional loans due to credit or other issues. It can also be a lifesaver for electronic cigarette shops, medical marijuana shops, gun sellers, collection agencies, and adult and escort businesses which are considered high risk by banks and other standard lenders.


How Do Merchant Cash Advances Work?

There is an income analysis and negotiation between the cash advance company and the business to determine the amount of the advance and the details of how repayment will be handled (length of time and percentage of receipts collected and essentially the interest rate). In a traditional loan, a business pledges collateral to secure the loan and agrees to send in monthly payments and there is no flexibility in payments. With a merchant cash advance, the advance is secured by future credit card income and is paid from said payments and will vary with the income of the business. This feature of merchant cash advances is especially helpful for seasonal businesses who may have trouble paying on traditional loans during their slow or off season. 


Mechanics Behind Them?

The agreed upon percentage of the business’s daily card receipts is taken directly from the credit card processor that handles the payments. This is done on a daily basis until the pre-determined amount has been recouped. The money can also be taken directly from the proceeds deposited to the business account. For example: the business receives $10,000 in exchange for $12,500 of credit and debit card receivables. The advance company takes a portion of daily income until it receives $12,500. The portion taken is part of the negotiation and varies from 5% to 15% of daily receipts. The business doesn’t have to worry about making an actual payments and doesn’t have to worry about coming up with large payments when business is slow.


How Can Advances be Used?

Unlike traditional loans which have many restrictions, advances can be used however they are needed by your business. You can use the money for business expansion, advertising, payroll, taxes, inventory, unexpected repairs, or anything you need to grow your business.


What Company Should You Choose?

Before getting a merchant cash advance, be sure to do your research on the industry and standard terms and procedures so you can be an educated consumer. The rates and percentages vary greatly among companies so choose wisely. Also look to a company such as Painless Processing that has experience with your type of business and will be a good financing partner for you.


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