Though loans and merchant cash advances work differently, neither should be taken out without due consideration to certain factors.

Credit card sales vs. Credit score

Business owners with low credit scores face a lot of problems in acquiring traditional loans. Merchant cash advance providers accept the fact that some business owners may not have a good credit score. Therefore, the providers also consider the projected credit card sales of the business.

The amount of cash advanced to business owners depends on both their credit score and credit card sales. Business owners should have at least one of the two – high credit scores or high credit card sales – for an advance to be approved. Approval is almost guaranteed if the business owner has a good credit score as well as high credit card sales.

Term of the advance

Merchant cash advance providers expect their money to be repaid within the preset payment term. While loans are repaid with interest, the advance is paid back with a fee that is calculated as a percentage of the credit card sales of the business. Just as the interest rate for long-term loans is higher than short-term loans, the fee charged for the advance also increases with the term of the advance.

It is advisable to repay the advanced cash as soon as possible, as the overall cost of the advance increases with time. For example, the advance that is repaid in six months is cheaper than that paid back in one year.

Approving the merchant cash advance provider

The same laws that regulate other financing organizations such as banks do not regulate the merchant cash advance industry. Many providers charge exorbitant fees and exploit the needy or desperate business owners. The industry is trying to regulate itself to ensure its growth and discourage dishonest merchant cash advance providers from hurting the image of the industry.

Before taking out an advance from a provider, evaluate the terms very carefully and weigh multiple providers to find the best deal. Do not get ripped off by unscrupulous providers. Check references to make sure you are dealing with an honest provider.

Merchant cash advance is an option for business owners unwilling or unable to take out traditional loans. However, there are many disreputable providers in the market, and business owners need to be prudent.

Do your homework as you would before taking out any other loan. Having a clear plan to repay the advance quickly is a good way to reduce the overall cost of the merchant cash advance.

Daljeet Sidhu is Co-founder at TradeSeam Business Network. Connect with customers, suppliers, partners and service providers online and start receiving qualified sales leads to grow your business. Find, Compare Prices and Save on vendors and suppliers for your business needs. Power up your business by leveraging the Tradeseam verified seal to build trust with customers, partners and suppliers and receive more qualified sales leads and business opportunities. Read our merchant cash advance advice. Compare business cash loan quotes.

Author: Daljeet Sidhu
Article Source: EzineArticles.com
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This product is very unique. It’s a purchase of an asset, not a loan, so we have to use specific language consistent with a purchase of an asset, like retrieval rate and discount rate instead of interest rate. A lot like factoring but it’s of a sale that hasn’t yet happened.

A cash advance provider gives merchants a lump sum cash advance up front. In exchange, merchants agree to pay back the principal and fee, by giving the company an agreed percentage of their credit card sales until their balance is zero. This percentage is between 12%-24%. The payback time-frame is only 5-12 months.

Merchants generally must use the providers’ credit card processor because the advance is paid back automatically as a percentage of each batch’s proceeds. A small number of merchant cash advance companies do not require the merchant to change credit card processors. So if this would be a problem, make sure to ask the merchant cash advance company you are thinking about working with.

Cash advances are very different from traditional funding programs. In essence merchant cash advance providers purchase a small percentage of future MasterCard and Visa revenues, and the merchant repays this as a daily percentage of those revenues.

Getting cash from traditional financing institutions can be difficult for some businesses, particularly retail, restaurant, franchisees or seasonal businesses. These merchants most heavily use credit card processing, so merchant cash advance programs offer a number of benefits.

Why Do Merchants Like It

The cash is usually available more quickly than it is with traditional loans. These programs appeal especially to retail and restaurant merchants not only because these types of businesses can rarely get traditional funding, but also because of the immediate liquidity.

Most cash advance providers advertise that the cash can be available in about 10 days. Unlike a loan with a fixed rate of interest, amount due and set due date each month, with merchant cash advances the money is paid back as credit card receivables come in.

Merchant Cash Advance programs are cash flow friendly, especially during seasonally slow periods. Traditional loans and leases require a set payment every month, whether the business has made a sale or not. Because payments are calculated as a percentage of sales, if sales are growing, the amortization could be quicker, but if the proprietor experiences some interruption or downturn in business, the payments will be lower.

In most cases, business owners put up no personal collateral and make no personal guarantee.

How Providers Make Money

Finance charges can vary widely, not just from one provider to another, but from one advance to another. As an example, the range of financing on a $10,000 advance could be as low as $1500 or as high as $4,000. That’s a 60% difference.

There is no fixed interest rate; the effective interest rate varies depending on the business. If the merchant’s business is doing well and sales are up, the advance provider collects the money sooner and the interest rate is rather high. Since there is no time limit on paying back the loan, the effective annual rate decreases as the payments are extended over time, although the cash provider typically forecasts a fairly short period for payback, usually less than a year.

There’s no question that the merchant’s cost for this kind of financing is going to come in more than a conventional loan, but it’s pretty much a foregone conclusion that a conventional bank will reject this merchant for their much needed loan.

The merchants interested in a program like this may have a sketchy or distressed credit history. They’ll have things like past tax issues, a list of delinquencies, collection matters, liens or judgments that would be an automatic red flag for a conventional bank. The merchant cash advance industry caters to businesses that can’t get traditional funding.

A Risk Worth Taking

There is a risk to cash advance providers and a fairly high risk (hence the higher cost to the merchant for the money), but they use sophisticated models to determine the future likely credit card purchases. They also offer the cash with relatively short payback periods to help mitigate risk.

Although approval isn’t as difficult as it is for most bank loans, few cash advance providers will approve new merchants without a history of credit card transactions. Even fewer will approve sums larger than what merchants can reasonably expect to earn from credit card transactions in a year.

The provider of the merchant cash advance takes all of the risk, the risk is high, but since it is paid out of projected future sales, it is typically a risk worth taking. Seasonal businesses that need cash to carry them through lean seasons or merchants who have an unexpected downturn in business (say because of road construction, building repairs or extended illness) might find a need for a cash advance until business picks up again.

However, merchant cash advance companies say that ailing businesses are not the only merchants interested in this kind of program. Many types of businesses are often underserved by traditional funding institutions. Take for example a restaurant, it could be a very successful business, but a traditional bank wants to see tangible assets. Perishable foods or used restaurant equipment just won’t make the cut, even if that restaurant is packed every night.

There are many examples of times when owners of healthy small businesses could use cash to help build their businesses but can’t get the traditional funding necessary. These include franchisees who have exhausted their savings to purchase their first franchise and want to open a second one; merchants whose competitors have closed and have the chance to buy their competitor’s old inventory or move into a new location; expansions; buyouts; or simply the desire to move quickly on a perceived new opportunity.

Dan Ollman is President of Crown Financial Services. Crown Financial Services is a proud member of the American Cash Flow Association, Las Vegas Chamber of Commerce and the Las Vegas Better Business Bureau. They provide working capital to businesses by purchasing a small portion of their future credit card sales.

Crown Financial Services helps you turn your future credit card sales into cash. We provide small business cash advances for merchants who currently have credit card processing. You can get a cash advance on future credit card sales with a merchant account cash advance loan. Merchant account financing, also called credit card receivable factoring, is an excellent alternative to restaurant loans and other business loans.

For a free- booklet, please log onto 10 Ways to Get Working Capital

Author: Dan Ollman
Article Source: EzineArticles.com
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“I have unique and amazing products, but no one knows about them because I can’t afford to advertise them,” thought Amistad.  “And even if they did know about my little shop, they’d see the shabby exterior and walk right by.”

All Amistad needed was a little bit of cash to both spruce up his store’s look and to advertise, via flyers, business cards, coupons and banners, but in his eyes, that was highly unlikely because he didn’t have the best credit and he refused to use his house that he’d worked so hard to buy, as collateral.

What Amistad didn’t know, but would soon find out, is that there was a way for him to get the extra cash he needed for his business, in spite of his credit score and without having to put up collateral.

One day, Amistad had some down time at his store (which was a common occurrence).  He decided to use his time to dabble on the internet.  As he was visiting websites, he saw the words “Merchant Cash Advance” and immediately became intrigued.  “I’m a merchant,” he thought.  “And I need cash.”  So Amistad quickly clicked on the link.  Eyes wide open and mouth gaping in disbelief, Amistad read through the rules, requirements and benefits of the merchant cash advance.

“Approval in 48 hours, funding in as little as five business days, no collateral required, up to $500,000 in funds, renewal eligibility every three to four months!” Amistad read aloud.  He scrolled down the page to the eligibility checklist, and realizing that he met every requirement, he filled out the online application immediately.

Two weeks later, Amistad had business cash in his account.  He had flyers, banners and business cards printed and he had his store painted in the boldest shade of blue he could find.  Soon, his business was booming and he had the merchant cash advance to thank.

With the ability to renew his funds every three to four months, Amistad and his merchant cash advance now live happily ever after.

Chrystal King writes articles about the Merchant Cash Advance , the alternative method of business funding, for Merchant Resources International.

Article Source:http://www.articlesbase.com/loans-articles/a-merchant-cash-advance-love-story-1424544.html