Business cash advance, sometimes also called “merchant cash advance” or a “business cash advance loan” is a relatively new financing option that businesses use as an alternative to bank loans or traditional lines of credit. Using a business cash advance requires no collateral or credit check, and advance amounts are paid back very quickly, generally within a few months or even within a few weeks.
A cash advance is not a loan. In a cash advance transaction, a business takes an “advance” on future sales, paying back the advanced amount as a portion of daily credit card sales until the entire amount is repaid. If your business doesn’t qualify for a traditional loan, or needs cash faster than the loan process would allow, a cash advance might be the best way to get the cash you need for payroll, business operations, or to take advantage of an immediate business opportunity.
Cash advances are repaid in increments automatically as a portion of daily sales. Transfers are made directly from your merchant account to the cash advance provider. When credit card sales are totaled at the end of the day and batches are settled, a percentage of the daily sales total will be transferred to the advance provider. Repayment begins immediately after an advance is taken.
Cash advance transactions are categorized as a “sale” of future sales revenues in exchange for a cash payment. Since there is no credit check, no credit obligation will be reflected. You’ll need to show a steady sales volume, a credible business history, and proof that your sales can support repayment in order to qualify. Cash advances have “fees” attached that are paid back with the advance balance. Most vendors are somewhat flexible with repayment terms and basic qualification requirements.
This guide provides the necessary information for those considering a cash advance or factoring service transaction. It reviews some basic terms and concepts, outlines how the cash advance process works, how to qualify for an advance, and how to choose a provider.