The business cash advance is an alternate method of financing small businesses. Businesses with mediocre or poor credit can use a merchant cash advance to finance day to day activities in the short term. A merchant cash advance is not a loan. Rather, it is the purchase of future credit card receivables. The business sells a portion of its’ future credit card sales to the lender in exchange for a lump sum of cash. A previously agreed-upon percentage of future credit card receipts are automatically forwarded to the lender. In order to be eligible for this kind of cash program, the business needs to achieve a minimum amount of credit card receipts per month.
One of the advantages of this type of loan is that a business owner is not required to go through a tedious loan application process to get their hands on a loan. Borrowers can quickly and easily access capital. If a business owner meets the basic requirements, money can be received within a week’s time. Borrowers can manage cash flow with greater flexibility – especially when the sales are low. Merchant cash advance lenders give more weight age to credit card sales than to a business owner’s credit score, providing a great alternative to borrowers who may not qualify for traditional loans.
Business cash advance lenders are currently not bound by any state laws which limit lenders from charging exorbitant rates of money. This allows them to operate in a highly unregulated market in which they charge much higher interest rates than banks. Terms can range for 3-18 months as agreed between the two parties. Merchant cash advances are a great option for short term financing but should not be considered a long term cash flow solution.
A merchant cash advance is a great way to finance your business if your credit history is not good or if you are turned down by traditional lenders for money. With unregulated, high interest rates, it should be viewed as a credit building stepping stone to traditional financing.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to