A Merchant Cash Advance is a lump sum payment to a business in exchange for an agreed upon percentage of future credit card sales. The business authorizes the merchant cash advance company to take a percentage of its daily credit card income directly from the processor that clears and settles the credit card payments. Once the obligation has been met, usually in a year or less, the automatic deductions stop.
Merchant cash advance companies are most often used by retail businesses that do not qualify for regular bank loans. Merchant cash advances are not loans - they are a sale of a portion of future credit and/or debit card sales.
Merchant cash advances, has many advantages over the structure of a conventional loan. Most importantly, payments to the merchant cash advance company fluctuate directly with the merchant's sales volumes, giving the merchant greater flexibility with which to manage their cash flow, particularly during a slow season. Additionally, the ease, simplicity and speed of the application process, as well as the lower security position (i.e. behind that of the bank and landlord) associated with merchant cash advances are significant advantages. An example transaction is as follows: A business sells $25,000 of a portion of its future credit card sales for an immediate $20,000 lump sum payment from a finance company. The finance company then collects its portion (generally 5-10%) from every credit card sale until the entire $25,000 is collected.
Repayment methods for the business:
ACH Withholding: When the finance company receives the credit card processing information and deducts its portion directly from the business's checking account via ACH
