Business Cash Advance

In today's tight credit market, cash advances are often an attractive option for businesses that need capital to grow. One of the most important merchant cash advance facts is that these are not loans but "purchases and sales of future income." Cash advance providers operate according to different rules than banks and traditional sources of capital.

The difference between a bank and a cash advance provider

When soliciting capital, keep in mind that a cash advance provider is bound to different rules and regulations than those you are used to. Unlike a bank loan where the borrower has to make monthly payments, a cash advance provider will collect a set percentage of revenue from the borrower's sales until the balance is paid off.

Usually, paying off capital is done over the span of a year. There is no set schedule, however, so the final payoff date depends on the merchant's sales volume.

Due to the payment structure of advances, cash providers typically target retail, restaurant, and service companies that have strong credit card sales but aren't qualified for loans due to their bad credit or lack of collateral.

Although advances are more readily available to these companies, they often carry interest rates of 60 to 200 percent. This is why business owners seeking this type of capital need to keep an eye on costs.

How to choose a reputable cash advance vendor

Although merchant cash advance providers are not regulated under the same rules as traditional banks, following these simple tips from the New York Times can ensure you get a fair deal from your merchant advance provider:

• Before you sign any contracts, make sure you know the annual percentage rate of the loan.
• Pay close attention to the payment terms. Some loans require a daily fixed payment, while others collect payment from revenue.
• Take a holistic view of the loan terms and don't get too caught up with the interest rate - the payment terms dictate the actual cost.
• Get multiple quotes before committing to a provider. This allows you to negotiate favorable terms and ensure you are being given a fair rate.

Getting a merchant cash advance is not a decision to be taken lightly. By focusing on the key merchant cash advance facts, you can determine if such a loan is right for you.

One of the most important things to keep in mind is that merchant cash advances are ideal for small businesses that have less than $5 to $10 million in annual sales. Finding credit is difficult for companies under that umbrella.