Advantages of a Merchant Loan

A merchant loan offers both retail and food service businesses an alternative to traditional bank financing. These loans, also known as “cash advance” loans have several advantages that make them attractive to small independent businesses.

Merchant Loan Defined

A merchant loan is an advance of cash by a lender to a small merchant.  Small retailers, gymnasiums, and other small businesses are examples of businesses that are candidates for merchant loans. Typically, a merchant loan lender requires that you accept credit cards in your business. The lender will advance the money and then collect the funds owed by collecting the credit card payments owed you. A fee is charged for the service and that is how the lender makes it's money.

Loans Designed for You

One of the advantages of a merchant loan is that these loans are designed with the small business owner in mind. Typcially, the lender understands your business and works within the uneven cash flow of small retailers. 

Fast and Simple Application

A traditional bank loan can involve a detailed and lengthy application process. Often, you must have cash or other collateral to be eligible for a loan.  However, a merchant loan isn’t really a typical loan that requires collateral and a detailed credit history.  With a merchant loan, the lender is advances money with the expectation that your credit card receipts will cover the repayment. Therefore, in order to be eligible for a merchant loan, you will need to provide a lender with your business’ cash flow history and details of credit card receivables.  Many merchant loan lenders need no more than 60 days history of credit card sales to make money available to you.

Quick Funding

Applying for a regular bank loan or a line of credit requires an accepted application, approval and funding process.  These traditional loans can take 30-60 days to close. A merchant loan, on the other hand, can close as quickas two weeks, after approval. The approval itself will only take about two days and the funding will be completed in less than week.


Typically, traditional loans are used for a specific purpose. For example, expansion or buying new equipment are common uses. A revolving line of credit offers flexibility, but the approval and funding process is every bit as lengthy as a traditional loan. In sharp contract, a merchant loan combines quick turnaround and flexibility. A merchant loan can be used at the discretion of the business owner.  As a result many merchant loans are used to smooth over short-term cash flow problems such as meeting payroll.