Concerning merchant account services, a merchant cash advance was originally structured as a lump-sum payment to a business in exchange for an agreed upon percentage of future credit card or debit card sales. A merchant cash advance can be used to describe purchases of future credit card sales receivables or short-term business loans.

As interest in their business grows, providers—who charge premiums of 30% or more on the money they advance—are trying to promote industry standards to avoid scrutiny from regulators.

Merchant account services mostly target retail, restaurant, and service companies that have strong credit-card sales but don’t qualify for loans because they have bad credit or little or no collateral. The catch for takers is how much cash advances cost compared with interest on a loan or credit line. The equivalent interest rates can range from 60% to 200% APR.

Merchant Cash Advance Companies

Merchant cash advance companies take pains to point out that advances are not loans; instead, they are considered to be a “purchase and sale of future income.” That means that merchant cash advances are not bound by laws that regulate lenders and limit interest rates. Instead of requiring regular fixed payments, they directly collect a set percentage out of a merchant’s daily credit card sales until they recover the advance and their premium, usually in fewer than 12 months.

Providers of merchant account services say businesses benefit because the amount they pay varies with their cash flow. They pay less in slower months. 

They also point out that when a business takes a loan, they have a firm date that it has to be repaid. In a merchant cash advance, there is no due date or fixed payment.

Observers see plenty of room for growth in the merchant cash advance industry. Advance providers have penetrated just 10% of a market potentially worth $5 billion to $10 billion in outstanding advances.

If you are considering utilizing merchant account services, there are a few characteristics to consider.

Features

Take into account how long the company has been providing merchant cash advances, the proportion of applications it accepts, the time it takes to approve a request and the time that it takes to actually fund your application for a cash advance.

Repayment Terms

The range of available cash advances extends to $500,000 or even more, depending on the nature of your business. You do not pay interest, there are no minimum monthly payments, and there is no specific repayment period.

Loan Application Information

Providers of merchant account services seem primarily interested only in United States businesses. In the application process, you will submit credit history and gross revenue information, and based on your particular profile, the cash advance company will respond with proposed repayment terms for you to approve.

Help & Support

The important thing is not so much whether providers support email, telephone or live chat, but how quickly and intelligently the companies respond on any of those channels.