Merchant cash advance loans are often not considered true loans, but they work similarly to one. A company funds a business with a certain sum of money based on the average amount of credit card sales it receives each month. These types of programs are common for restaurants and retail businesses which may find that their income fluctuates seasonally.
Some months they are earning more than enough from sales and other months their sales slow down. Without some form of funding, a business would not be able to handle covering its overhead, paying employees and other expenses.
At one time, these merchant cash advance loans were only given to businesses that accepted credit or debit cards as their primary means of revenue. Now, there are products available to businesses that use credit cards as sources of some of their revenue. The way the advance works is that the company gives a business a sum of cash upfront which will be repaid in future sales.
The repayments are structured in two basic ways. A merchant gets the funding and repays it by giving the lender a portion of their future credit card and debit card sales. A merchant may also repay the money by allowing the lender to take daily or weekly payments from their account using an Automated Clearing House or ACH withdrawal.
These products are great for small businesses because they only pay when the business makes a credit or debit card sale. This is the case no matter which repayment option they choose. If there are no credit or debit charges coming in, the merchant has nothing to worry about as they do not need to make any payments until the charges resume.
The rates on these advances are higher than other financing products. They do vary from one lender to another so it is important to seek these advances from several places so that a comparison can be done to find the best option. It is also important to understand when the repayments will draw as they are automatically taken from a bank account you specify when obtaining the advance.
If your business is less than one year old, it may not qualify for an advance. It is better to look for funding that is designed for startups. If your business has ever been in bankruptcy, it will also not qualify for most merchant advances. If your company does have a merchant account and it is in good standing, and it has been in business over a year, it is likelier that you will get an advance however the business may need to show at least $5000 or $10000 in credit card charges each month.
If you own a business and you need quick cash, consider leveraging your credit card merchant account to obtain the money that you need. Merchant cash advances or MCAs (aka merchant cash advance loans) are a quick way to get the money you need, and they are easier to obtain than traditional loans.