What Is A Merchant Cash Advance?
A merchant cash advance - sometimes called a business cash advance - is a type of advance where a business owner receives cash in advance for their future credit card and/or debit card sales. The agreed-upon amount to be repaid - the cash advance plus a premium - is paid back to the merchant advance company (also known as a cash advance provider) by the company taking an agreed-upon percentage of each credit card transaction (called a "premium" or "hold back", usually 10% to 20% depending on the size of the cash advance, the perceived risk of the business owner and the terms of the repayment) until the cash advance plus the premium has been repaid to the advance company.
Who can use a merchant cash advance?
A merchant cash advance is good for any business which offers credit card service. These businesses are usually retail businesses, restaurants, and service companies that offer credit card services and have strong credit card sales.
A merchant cash advance is ideal for short-term financing when a business urgently needs an infusion of cash, particularly if the premium is around the same amount as the interest rate would be on a loan.
How does a merchant cash advance differ from a business loan or credit line?
- The cost of interest on a business loan or credit line is lower than the cost for a merchant cash advance.
- While loans are regulated by lender laws in the USA, cash advance providers stress that a merchant cash advance is not a loan but a "purchase and sale of future income." This statement enables the cash advance provider to avoid being bound by lender laws that regulate lenders, for instance, by limiting the rate of interest a lender can charge. Therefore, merchant cash advances are not legally defined as loans and they are not reported to credit bureaus. Rather than setting a regular, fixed payment schedule as is done with a loan, the merchant cash advance company directly collects a premium - an agreed-upon percentage from a business owner's daily credit card sales - until the cash advance plus the premium is repaid.
- Cash advance providers state that businesses benefit from merchant cash advances because the amount that is repaid depends on their cash flow which means that the business owner can pay less in slower months compared with a loan which has a firm date when it has to be repaid through fixed payments that are made on a schedule. This method of payment differs from a merchant cash advance which has no due date and no fixed payments.
Merchant Cash Advance Related To Loan Brokering
A loan broker is an intermediary between a borrower and a lender. The loan broker locates advance cash lenders and analyzes their suitability for a borrower such as a business owner to receive a cash advance. When a match is found, the loan broker arranges the advance amount plus the premium to be agreed upon between the two parties. In arranging the cash advance amount and premium, the broker collects a fee for their service. Our high-income loan broker program will get you started as a loan broker in about 10 days.
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