A merchant cash advance is a little known financial practice that provides necessary cash to merchants through their credit card processor. Few merchants realize that they have this choice and go directly to family or a bank when they need capital to pay for expansions, repairs or upgrades of their stock and equipment. If you are a merchant in need of cash fast, you should look into factoring as well.
The idea behind factoring is something like selling futures. You, as the entrepreneur, agree to sell future credit card sales at a lesser price to the factoring company. The funds is provided now in exchange for future revenues in the next several months.
These agreements are usually for the short term, rarely more than 1 year, and are a excellent way for a business with a verifiable credit card sales history to get needed money.
Unlike a bank loan, where the repayment schedule is fixed for the life of the loan, a factoring arrangement takes into account the fact that in almost every business there are great months and tough ones. Your payment is directly tied to your credit card sales, as a portion, not a set fee.
If you have chosen to pay a 10% daily capture and you charge 8,000 dollars one month, your payment that month comes out to $800. In the next month you may charge $10,000 and pay 1,000 dollars. This flexibility is a great option for a growing company.
An additional benefit of a merchant cash advance is the speed in which the cash turns up in your bank account. While a bank may take several weeks of decision making and tell you how you use the cash when and if they give it to you, with a factoring arrangement, you will have the funds in about a few working days, and you can apply it to whatever you see fit.
