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Understanding Merchant Cash Advance

Merchant cash advance is also called as “credit card receivable funding”, which was formerly structured as a lump-sum payment provided by credit card or debit card companies to a business, upon an agreed future percentage. The term is now commonly used in funding small businesses which is characterized by short payment terms, generally under twenty-four months, with small regular payments, which is more beneficial to business owners when compared to large monthly payments and longer payment terms with traditional bank loans. Merchant cash advance is easy-to-manage, quick and efficient form of funding small businesses, based on a business credit sales. The term is used to describe purchases of short-term business loans and future credit card sales receivables, and the main criterion for being authorized and approved to have a merchant cash advance is having a predictable credit card sales volume.

Merchant cash advance companies gain a certain percentage of the business daily credit card income, which is done directly from the payment processor, clearing and settling the credit card payment until the obligation has been paid off. The terms of merchant cash advance providers vary, but it depends on the proof provided such as having a stable or steady credit card sales volume. Usually, it will only take three to fourteen days upon completion of the application process for your merchant cash advanced to be issued, which is really fast, then you can spend the proceeds on whatever you think is good for your business. Thus merchant cash advance creates a great opportunity for business sellers to grow and expand without undergoing the complex process of traditional bank loan approval. Merchant cash advance is used by retail business sellers that does not qualify for regular bank loans.

The different payment options are split withholding, lock box and ACH withholding. The most preferred method chosen by many retailers is split withholding, because it provides a seamless collection of funds, wherein the credit card processor automatically splits the credit card sales between the finance company and the business with the agreed percentage. In lock box or also called as “trust bank account withholding”, credit card sales are deposited into a specific bank account which is controlled by a finance company, and the agreed portion is forwarded to the business via EFT, ACH or wire transfer. When it is a structured sale, the merchant cash advance provider directly deduct the portion from the business’s checking account via ACH in ACH withholding, and if it is structured as a loan, the finance company just debit a fixed amount from the daily sales regardless of the amount of business sales.

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