Cash Advance Programs

A cash advance program is a way for a merchant who processes credit cards and has a merchant account to get access to money when they need it. Sometimes it may be referred to as a merchant cash advance. Cash advance programs are offered by merchant service providers and other organizations, although the owner of the loan may be a third party, referred by the merchant organization.  Keep in mind that cash advances are somewhat different than getting loans online in the form of a personal or business loan.  There may be a limit on the amount of loans an organization will offer, regardless of the merchant’s monthly receipts.

What Differences Exist Between Cash Advance Programs and Business Loans?

A business loan can be based on a variety of collateral. Cash advance programs are specifically capital provided in exchange for guaranteed repayment through the merchant’s future credit card sales and require no collateral. Whereas business loans may be repaid with a monthly payment, for example, and over a set period of time, cash advance programs take repayment on a daily basis, using a predetermined percentage of receipts until the amount is repaid. This means that the repayment period is variable based on the merchant’s business success, and there are no fees or penalties for this. In addition, a cash advance program generally offers much quicker access to the money than a loan would, partly because the application process is speedier. Various providers promise cash with 24 hours to a week upon approval of the request.

What Are the Qualifications for Such a Program?

The key qualification lies in the ongoing relationship between the merchant and the merchant services provider. That is, a merchant is likely to be required to have an account with the provider in order to receive a cash advance from it. The second element is the relationship between the amount of cash desired and the merchant’s average volume of credit card processing. Because the basis of the cash advance is the future credit card activity of the merchant, a bad credit score need not prevent the cash advance from taking place.

Merchant service providers may have a minimum monthly credit card transaction amount that merchants must meet to qualify for a cash advance. One firm gives a figure of $2500/month. Disqualifications in some cases may be having a home-based business, being a start-up (less that 2 years of processing history, for example), or not using a physical terminal for credit card processing.

What, if any, Limitations Exist on the Use of Funds?

Merchant service providers who have programs for cash advances both specifically say that there are no strings on the advance, and also give a range of examples to support this. Possible use suggestions include paying off debt, meeting payroll obligations, purchasing equipment, making renovations, expanding the business, or other uses.

Things to Watch Out For

Warnings about cash advances are both for the merchant and for things to watch out for in the advance providers. First, merchants are advised not to use cash advances as a long-term solution to an ongoing problem. Second, merchants should be on the lookout for programs that have undisclosed fees

Sources

merchantwarehouse.com
fastupfront.com
transaxmerchants.com
first-data.com