What is a Merchant Cash Advance?

A merchant cash advance is the business version of a payday loan for individuals. This type of small business loan provides an advance on future earnings of a company. A merchant cash advance can have its pros and cons for small business owners, however.

The Pros of a Merchant Cash Advance Program

A merchant cash advance can provide funding businesses need quickly and efficiently. In most cases, there are no restrictions on how a business can use the money it receives. The advantages of going this route include:

Speed – Merchant cash advance programs generally provide a funding answer in a fraction of the time banks take to process loans.

Lending requirements – Businesses typically only have to prove a steady income stream via credit card receipts to obtain this type of funding. A minimum amount of time in operation might also be required. Credit standing or lack thereof is generally not an issue.

Repayment ease – When a merchant cash advance is granted, the lending company essentially purchases a share of incoming receipts for a period of time to cover the advance and its premium. The repayment is handled directly through credit card companies and is taken right off the top of daily earnings until the debt is settled.

The Cons of A Merchant Cash Advance

The biggest disadvantage lies in the fact that a merchant cash advance can end up costing a lot more than a standard small business loan. Since this type of lending is not as heavily regulated as traditional loans are, the costs can prove very high. It is estimated the APR on some cash advances runs between 60 and 200 percent.