Skip to main content
Shaw Merchant Group
What Merchant Cash Advance Lenders Can Do for You
Wednesday, April 05 2023

Operating any type of business comes with a lot of expenses whether you are preparing for launch or established in a market already. If you need more money to help your company succeed, a merchant cash advance lender can provide that without the usual complexities of trying to get a loan from a bank or other organization.

How Do Merchant Cash Advance Loans Work?

Although these financial boosts are sometimes called merchant cash advance loans, they do not work the same way as you might expect. The end result is basically the same. You get money you need to help launch or grow your business. The process is quite different. A merchant cash advance lender uses daily receipts and revenue to determine how much money you can get. This gives him the confidence that they will recoup their money without any problems. Of course, there are also fees that mimic loan interest added to the total payback amount. Instead of interest, however, this is called the factor rate. Paying back a cash advance also works differently than a loan. Instead of making a monthly payment on principal and interest, a percentage of your daily credit card sales is automatically taken out and remitted to the merchant cash advance lender. These financial solutions essentially buy a portion of future sales before they occur.

What Can You Use a Cash Advance For?

The simple answer to this question is, "anything." Individual cash advance providers have different rules, of course, and you need to read the fine print to fulfill the terms you agree to. However, any necessary expenses associated with building, operating, or growing your company can use this cash advance money.

After you launch your business and have a track record of credit card sales, you will probably qualify for some type of merchant cash advance loans. You need to show that you have money coming in if you want to sell a portion of it to the lender. Then, since you are responsible for paying back a percentage of daily revenue, using the cash advance to grow and expand makes sense.

Good reasons to get a merchant cash advance include:

  • Additional marketing efforts
  • Expanding product lines or service offerings
  • Extra training for workers
  • Renting more office or warehouse space
  • Research and development

Is a Merchant Cash Advance Right for You?

Ultimately, the decision to get this type of funding for your business depends on whether you can afford to pay back or not. If you need an immediate influx of cash, these can work quite well. However, it is important to note that the factor rate can make your payback quite a bit higher than the initial amount you get. As with any type of loan, the lower risk you represent, the less you have to pay in the long run.

After determining if this type of unique funding method works best for you, only use a merchant cash advance lender with a reputation for trustworthiness. Operating your own business always carries some degree of risk, however, you can minimize that is careful research and financial decisions.



 How Merchant Cash Advances Work 

If you are a merchant or own a business, you have most likely heard of merchant cash advances before. Merchant cash advances are a common service rendered by merchant services providers that are designed to provide merchants with the cash flow that they may need to fund operations on a short-term basis in the event of a liquidity shortage. However, if you are new to merchant cash advances, there are plenty of things that you are going to want to know before you commit to a merchant cash advance for your business. Knowing everything you can about merchant cash advances is a great thing to help you know whether it is a good option for you in the long run.

What are merchant cash advances?

The first step to knowing whether a merchant cash advance is the right choice for your business is defining what exactly a merchant cash advance is and what the process involves. A merchant cash advance is mostly exactly what it sounds like--an advance on the money that a merchant would otherwise be getting further on down the road from a deposit involving activities like credit card processing. When a merchant is granted a cash advance from their merchant services provider, it means that they will get access to money that would otherwise be deposited into their account in a matter of days, weeks, or months. This usually comes up when a business has an urgent need for the money that they are expecting and they are willing to pay some interest on it in order to receive it early.

Reasons for a merchant cash advance

There are a variety of reasons that you might need a merchant cash advance for your business. One of the most common reasons is that there is a slow-down in business due to factors beyond your control and you need to expedite the funds that you are planning to get in order to meet the short-term obligations and bills for your business. Without a cash infusion, you could quickly find yourself in a bad situation as a business and being left unable to pay bills and staff your business. This is especially relevant in businesses that have slow transaction velocity or have low margin and rely on cash flow to run their business.

Another reason that a merchant cash advance might be needed is to fund a rapid expansion, purchase, or business opportunity that a business doesn’t have cash for right now, but is already owed. If your business had an opportunity come up for purchasing or expansion that you just can’t pass up, then a merchant cash advance could be a way to gain the funding that you need to take advantage of the opportunity and put your business in the best place to succeed possible. Though merchant cash advances do come with higher interest rates than what you would find with a financial institution such as a bank, they also provide you with access to faster funding than a regular bank funding solution.

How does it work?

For those that want to get the most out of their merchant cash advance, it is necessary to know exactly how it works so that you can get the insight that you need to decide if it is the right choice for you. The merchant cash advance process is a pretty simple one, and here is the breakdown of what you can expect when you are going through the merchant cash advance process.

Apply/determine eligibility

The first step in the process is determining whether your business is eligible for a merchant cash advance. This is usually a process that is done in conjunction with your merchant services provider. Your merchant services provider will take into account processing history, bank statements, and any other information that they can take in to help them determine whether your business is a suitable candidate for a merchant cash advance. You should be prepared during this process to provide any and all information that they will need to make the decision and keep your business an open book.

Get your cash

Once you are approved for your merchant cash advance, the next step is to get the cash that you are applying for. Once you have been approved, your merchant services provider will authorize a lump sum payment to your account, with the assumption that you will pay for this cash advance using future processing funds that would otherwise go to you. It’s important to remember that a merchant cash advance is not a grant that you get to keep cost-free, it does come with a cost and it does need to be paid back with future deposits.

Pay off the cash advance

There are multiple ways to pay off the cash advance that you take from your merchant services provider, but the most common is to take a portion of your processing for a defined period of time. One important thing to note here is that when a merchant services provider does this, the total amount that you pay will be above what you took out as a cash advance. This is the fee for using the service and it is something that you should expect. This is the most important step, as it will start to decrease the debt liability for your business and start to recuperate your borrowing power.

Finding a reputable and trustworthy merchant cash advance partner

If you are going to place emphasis on one part of the process to ensure that your merchant cash advance experience goes well, it should be to find a provider that aligns with your needs and will provide you with reliable and affordable access to merchant cash advance services. There is no better asset to a business than to have a reliable and trusted partner that they can turn to when they are in times of need. Make sure to choose your merchant services provider carefully and use a merchant services provider with a great reputation.

Need Help?

If you have questions, or would like more information, please leave your name and contact information.

    ©2023 Shaw Merchant Group is a registered DBA of EPX, a registered ISO of BMO Harris Bank N.A., Chicago, IL, Fresno First Bank, Fresno, CA, and Citizens Bank N.A., Providence, RI.