Merchant Cash Advance

Merchant cash advance provides fast working capital, but can carry heavy interest rates.

What is a Merchant Cash Advance?

When you get a merchant cash advance, your business receives upfront working capital in exchange for a share of your future credit card or POS sales. Merchant cash advance companies frequently partner with card processing companies or POS companies to hold back a percentage of sales revenue.

How are merchant cash advances different from a business loan?

Merchant cash advances are not considered legally small business loans. You are selling future income in exchange for immediate cash. Instead of collecting payments to cover the advance, the merchant will automatically deduct a set percentage of your credit card or POS sales until they recover the advance. In contrast, other small business loans can be paid back using funds from other accounts, rather than being automatically withdrawn from your sales.

Because merchant cash advances are not loans, these agreements are not held to the same laws that regulate lenders, so interest rates can be upwards of 38%.

Is a merchant cash advance a good fit for my business?

Merchant cash advances offer benefits to small retail businesses, in fact you only pay back your advance when your business makes sales. If you have strong sales but struggle with little or bad credit, a merchant cash advance may be a good option for you.

What do I need to do to get a merchant cash advance?

Your business typically will not qualify for a merchant service cash advance if you have a prior bankruptcy on file, if your business has been in existence for less than one year or if you do not already have the ability to process credit card payments for your customers. This segment of the lending industry is not regulated, so it’s important to understand the costs up front.

What other small business funding options should I consider?

Small businesses turned to merchant cash advances in the past because they had few options to get the working capital they need. Now online lenders like Aspire are a great option for them.

Unlike merchant cash advances, an online loan from Aspire provides ongoing access to funding – take what you need, when you need it, and only pay fees on the amount you use. You can even pay off your loan early with no penalties, and you won’t be charged any fees on the remaining months.

The biggest difference between Aspire and merchant cash advance companies is the equivalent APR business owners will pay on their business loan. Instead of complicated interest fees, Aspire charges as low as 1.5% for each month you have an outstanding loan balance. Merchant cash advance companies typically don’t publish their interest rates and base them on the borrower’s credit rating. That said, the APR equivalent of the payback could be more than 38%.