Merchant cash advances 101

Every entrepreneur or businessman knows that it takes money to make money. Like you and me, every business-conscious person knows that finding a small business is very frustrating, especially if you have a good idea but don't want to turn to a bank or other lending institution for a loan.

Let us face the reality. When someone borrows money from a bank, they usually get a long list of requests to get approval. You must also understand at least some industry terms such as CBR, DTI, LTV, STIP, and many other terms and acronyms. Most importantly, you must convince your loan sponsor or loan officer that your business philosophy works.

The benefit is that SMEs have other sources of financing. The most popular is the merchant cash advance [MCA], also known as credit card factoring. One advantage of merchants' cash advances over traditional loans is that they can be used for any business-related expenses. Of course the only question is whether the merchant can repay the provider. Merchants have the flexibility to spend money in any way, including refinancing existing businesses, remodeling offices, upgrading tools and equipment, as well as working capital, marketing, payroll and other operating expenses.

So how does the merchant's cash advances work? The provider purchases future credit card receivables from the business owner. That is, the provider prepays from the business owner's future credit card receipt. In essence, a merchant's cash advance is not a loan to a customer who receives the payment. Instead of borrowing money, the merchant sells interest on its future credit card receivables. As long as the merchant’s credit card income is no less than 50 transactions per month, at least $5,000 in credit card sales, and has had the business in the past 12 months and must not have any public bankruptcy or foreclosure, the merchant has Eligible for cash advances. The payment is made by credit card receipt, so the business must accept the customer's credit card. There is no expiration date, and there is no fixed payment. Therefore, when the sales decline, the payment rate is also low. When the number of months increases and the business is good, the payment rate will increase as long as the merchant can afford it.

Source by John Gotidoc

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