A merchant cash advance is an alternative source of financing for small businesses who can’t get a bank loan.

*  Do you need funds quickly for business improvements or investments?

*  Do you need to pay off outstanding debt or taxes?

*  Do you need to make emergency repairs to your space or equipment?

*  Do you want to move forward with an expansion, but don’t want to wait weeks or even months, for a traditional small business bank loan to be processed?

*  Do you need funds in order to make rent or mortgage payments or meet payroll demands due to a slow season?

If you answered yes to any of these questions and if your business currently processes Visa and MasterCard, a merchant cash advance could be a viable alternative if a business has a cash flow problem and an immediate need for cash.

Here are some scenarios in which merchant cash advances helped these businesses:

A restaurant flooded and the insurance only covered 80% of the costs of the damage.  It needed the difference immediately because the restaurant couldn’t open until the work was completed.

A dinner playhouse was slow during the summer months and needed money to keep rent payments current and to meet payroll demands.

A dry cleaners owed some outstanding taxes and needed the money ASAP to bring current or otherwise they would have to pay a penalty.

The Facts about Merchant Cash Advances

Here’s how it works.  When a company gets a merchant cash advance, the deal is the purchase and sale of future credit card income.  No regular fixed payments are required by the company.  The lender collects a set percentage of the company’s daily credit card sales.  The collection continues until the lender recovers what they advanced to the company along with their premium.  Usually, the lender tries to collect the advance within one year.

One thing that is attractive to companies about the merchant cash advance is that, when they have a slow sales month, their payment to the advancing company is lower since they collect a set percentage of credit card sales.  Another attractive feature is that there is no actual due date for the advance to be paid off.  It is paid off when enough credit card sales are made for the advancing company to recover the advance and their premium.  In addition, no collateral is required to secure the advance.

The Premium Collected by the Advancing Company

There is no interest rate attached to a merchant cash advance because it is not a loan.  Instead the company making the advance collects what they call a premium or a percent of the credit card sales of the company receiving the cash advance.  For example, the advancing company may collect 20 cents for every dollar of credit sales the company makes until the advance is paid off. As you can see, merchant cash advances can be very expensive.  You need to check around and compare to find the best rates.

What are the Qualifications

Most merchant cash advance lenders require a business to be open for 60 days, that you are generating at least $4,000 monthly in credit card sales and you have no open bankruptcies in the last 12 months.  Your advance can be as high as 125% of the average monthly credit card sales.  You can obtain these funds usually within 72 hours.

Merchant cash advances are only one of several alternative financing options for small businesses.  Just like with any financing option, there are positive and negatives.  In a tight credit market, small businesses often have to take funding where they can find it.  A merchant cash advance is a targeted receivables financing with the only receivables being used is the credit card transactions.

One excellent source you might check out for a merchant cash advance is Merchant Resources International, a reputable source of merchant cash advances or work with a company like Alternative Funding Options.