A merchant cash advance is a somewhat popular method of short term finance among small businesses. There are several variations on the basic, but the general way a business merchant cash advance works is that a “lender” offers a certain amount of cash based on expected sales. Sales are project based on what sales have been, and in return the “lender” takes a percentage of daily sales until the advance is paid back. The term lender is used loosely as technically this is not termed a loan, but rather an advance on future sales.
The thing is, merchant cash advance rates are often much higher than those of a traditional loan. The balance to this is that the cash is fairly easy to get if you reach a certain sales threshold. Credit is rarely an issue, as the payment is generally drafted and paid directly, again, based on a percentage of actual daily sales. Most often the percentage is set to achieve payoff within a set amount of time, but because business owners are paying a flat percentage, they pay less on lower sales days.
What’s Square Got to Do with It?
Square, the company that offers point of sale service via a card reader that attaches to the iPad and iPad mini, rolled out its cash advance program in June 2014. If a customer processes $250,000 in sales annually through the square system, they are eligible for the cash advance program. Rates vary based on the amount of the advance, but the goal payback term is 10 months. It was recently announced that, due to new investment with Victory Park Capital, more customers would be able to take advantage of this program.
Is a Cash Advance for You?
A cash advance can be a quick and easy way to get cash to run your business when you need it, but there are drawbacks. The biggest of which are the high interest rates often associated with them. If you are a Square customer, it may be even easier to jump on the merchant cash advance bandwagon. Before you do however, visit Biz2Credit and see what the lenders in our network of over 1,200 have to offer. They may be able to save you on the merchant cash advance rates, and if not, at least you tried.