Merchant Cash Advance

Written by Steve Bryan

If it isn't possible or practical for your business to obtain a Small Business Administration or other type of loan, you can still obtain a merchant cash advance based on your monthly credit card transactions.

Applying for a Merchant Account Loan
Instead of referring to merchant cash advances as loans, some lenders prefer to say that they are purchasing your future credit card receipts at a discount (i.e., a $100,000 cash advance for $130,000 in credit transactions). In either case, companies offering merchant account loans need to verify the following information:

• Monthly Credit Card Sales: The lender will want to see proof of your credit card transactions in order to determine the monthly average for your business. If your credit sales are too low, you may not qualify for an advance.
• Life of the Business: When applying for a merchant account cash advance, you will have to show that you have been in business for a certain period of time, typically one year but sometimes longer.
• Credit History: Some lenders will do a background check, including obtaining a copy of your personal credit history.
• Collateral: Technically, a merchant cash advance is an unsecured loan. No collateral is needed, just an adequate amount of credit card transactions.

What Happens Next
Once the merchant cash advance has been granted, the lender will get a percentage of your credit cards sales each month over the life of the loan. The more credit transactions you have, the greater your monthly payment and the sooner your advance will be paid off. Slow sales, of course, mean less money goes to the lender.

Drawbacks to Merchant Cash Advances
Unlike credit cards and traditional business loans, the interest rates on merchant account loans tend to be quite high, exceeding 50 percent in some cases. Since these cash advances are considered to be the purchase of credit card receivables in many states, lenders can get around some of the laws governing loans.

On the flip side, an established business can quickly get a merchant account cash advance without having to use their home or other assets as collateral. In case a business goes bankrupt during the life of the merchant credit advance agreement, the owner may not have to pay the remaining balance.

It pays to shop around to find the best terms you can get. Start by submitting a free merchant cash advance quote request to be connected to reputable providers in your area.