Small Cash Advance
What is a Merchant Cash Advance?
Merchant cash advance is an alternate financial means for businesses to get a loan. The merchant cash advance loans are fairly new to the business world, offering their first loan about 2000.
A merchant cash advance targets existing business that need quick cash but may not qualify for a bank loan. The merchant cash advance lenders offer businesses a lump sum cash payment in exchange for a share of future sales. Such cash advances, being fairly new, are not regulated at the federal or state level and the lenders are trying to establish their own regulations to avoid scrutiny from lending officials.
Lenders who offer merchant cash advance loans point out the cash advances are not loans but a purchase and sale of future income. The lender collects a set percentage of daily credit card sales until the advance is recovered. The merchant cash advance come with a premium that can be as high as 30%. The merchant cash advance has no set payment requirements and no set payment time frame. Most businesses pay the merchant cash advance in about 12 months time.
A merchant cash advance might be right for the small business that has credit issues or little or no collateral, but has strong credit card sales. The payments vary depending on sales and a slow month will result in a smaller payment than a month that sees brisk credit card sales. A business that takes a standard small business loan is bound by contract to pay a certain amount of money each month for a certain number of months regardless of how well or poorly sales are.
The requirements to qualify for a merchant cash advance are simple. The applicant has to currently own a business and processes credit cards. Most lender’s charge no application fees, the funding is completely unsecured meaning there is no collateral or guarantee necessary to obtain the loan, there are no out of pocket costs, approvals are made within 24 hours and the funds are usually available within 7 days. Most merchant cash advance lenders offer cash up to $250,000 with automatic renewal for businesses that need additional funds. Merchant cash advance funds are not available for new businesses just starting up.
Businesses that find merchant cash advance useful are clothing stores, grocery stores, restaurants, auto repair shops, furniture stores and liquor stores to name but a few of the businesses that have been helped by such loans. Merchant cash advance is sometimes the only option for businesses to get the necessary cash to help through a cash flow crisis or to help a business to expand.
Being a relatively new lending venture, merchant cash advance has tapped a small percentage of the businesses that would benefit from its program. As the lending practice grows, there are those that want to put regulations in place to cap the high finance rate to something a little less aggressive. It would be in the best interest of all businesses if the lending practice was uniform in all states.