Friday, April 4, 2008

What is a Merchant Cash Advance?

A Merchant Cash Advance is a flexible alternative to traditional small business financing. It might also be called credit card receivable funding, credit card factoring or a business cash advance, depending on the provider or the person or forum talking about the product. While this might be called many things, a Merchant Cash Advance is the most common reference to this funding product.

In a nutshell, a Merchant Cash Advance is a really unique funding product allowing small business owners to access working capital now by selling their future credit card sales.

Let’s start at the beginning.
A Merchant Cash Advance is unique, but it is not hard to understand.
If your business accepts credit cards, you might be able to use your future sales to access working capital.

A Merchant Cash Advance is not a loan. It is a purchase and sale…customers sell Merchant Cash Advance providers a portion of their future credit and signature-based debit card sales in exchange for immediate access to business capital.

This is a financial option that can offer many advantages to a small business owner.
You can spend the money for any business purpose. You don’t need personal collateral. There are no checks to write. Everything is automatically handled by the credit card processor. You pay back the balance by processing regular credit and signature-based debit card sales. It is quick and easy when compared to other financial options.

Perhaps the most unique benefit is that there is no set maturity date, no pre-set payment amount. The amount collected aligns with your business’ credit card sales. The more you earn, the higher the payment amount. During slower periods, the amount declines.

Do you know of any other financial obligation that aligns payment amounts with your sales volume? Does your landlord decrease your rent because sales are down this month? Does your bank adjust your loan payment to match your business’ seasonality? No. So you can see how using the flexible structure of a Merchant Cash Advance can be used to help manage your business’ cash flow.

Confused? Don’t be—it is really very simple.
In our next post, we will create a real world illustration to help make it as clear as possible.
In the meantime, if you have any questions we can answer feel free to post them here.