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Everything You Need to Know about the Merchant Cash Advance

The number of small business lending options continues to grow. Since the financial crisis of 2008, more and more alternative lenders have emerged, offering cash solutions to the countless small businesses that need capital. Banks, unwilling to work with smaller companies, have left them unable to start, grow and expand their businesses. Alternative providers, on the other hand, offer speed and flexibility.

One of the most popular options is the merchant cash advance. What is a merchant cash advance? There are many reasons why small businesses are choosing this option. But first, lets take a closer look at what a merchant cash advance is.

What is a Merchant Cash Advance?

A merchant cash advance is a one-time capital infusion a business receives in the form of a lump sum. This lump-sum payment is given in exchange for an agreed-upon percent of the business’ future credit and debit card sales. This cash solution is best for the short-term. In most cases, the funding amount will be based on a one-month average of the business’ bank deposits or credit card swipes. Thus, a steady and sufficient revenue history is a must when applying.

Why Small Businesses Choose a Merchant Cash Advance

There are many reasons why small businesses turn to cash advances. The following are just a few of the many benefits:

  • Because cash advances rely on the business’ cash-flow, no collateral is required.
  • Small businesses can typically secure cash within just a few days.
  • Businesses with poor or no credit, past bankruptcies, limited time in business and limited collateral can easily secure the cash they need.
  • The application process is known for being easy and hassle-free. It can be completed in a matter of minutes.
  • Compared to traditional lenders, the requirements are simple and straightforward.

How Does the Repayment Process Work?

The traditional bank loan is very strict when it comes to the repayment process. The merchant cash advance, on the other hand, offers merchant flexibility. There are three main ways you can repay a merchant cash advance:

  • Split Withholding. This option involves the credit card processing company automatically splitting the credit card sales between the business and the finance company (per the agreed portion). Because this collections process is the most straightforward, it is preferred by both merchants and finance companies.
  • ACH Withholding. The finance company receives the credit card processing information and then deducts its portion directly from the business’ checking account via Automated Clearing House (ACH).
  • Lock Box or Trust Bank Account Withholding. This entails all the business’ credit card sales being deposited into a bank account controlled by the finance company. The agreed upon portion is then forwarded onto the business. This option is the least popular, since it involves a one-day delay in the business receiving money from credit card sales.

Interested in learning more about a cash advance? The experts here at First American Merchant have years of experience in offering this cash solution to a long list of business types and industries. Even businesses that struggle to secure funding can easily secure a cash advance with FAM.