My Business Credit Lines

Merchant Cash Advances: Introduction, Statistics and Benefits

For businesses that are in need of extra capital for expansions, advertisements or renovations, merchant cash advances for small business offer excellent solutions. These solutions are also helpful for companies that experience seasonal business spikes, need to upgrade equipment or need to stock shelves with the latest merchandise. Some of these expenses may be planned or unplanned and depending up on the merchant cash advance company, some businesses can obtain funds ranging from $4,000 to upwards of millions within as few as one business week.

Businesses that accept credit cards can easily use business cash advance services to access quick capital services. This allows merchant cash advances to leverage future credit card sales against cash advances, which allows unique products to individually fit key cash requirements.

These lump-sum payments are provided for future percentages of credit card and/or debit card sales, which makes it easy for companies to quickly repay debt terms. These short-term payments generally take three to 24 months to repay, which is far less time than traditional bank loans.

Short-term business capital companies were created to help companies that required money, but instead of these advances being loans, they are simply a portion of future credit and debit card sales. This makes them not subject to state usury laws, which often prohibit lenders from charging high interest rates. A largely unregulated market, merchant cash advance companies are able to charge higher interest rates, which is the only option left for many companies that may not have sufficient credit scores to apply for traditional bank loans.

The merchant cash advance industry has grown significantly. In 2013 alone, the industry estimated they were funding a minimum of $3 billion to small businesses annually.

There are several benefits to using a merchant cash advance company as business lines of credit, as these loans fluctuate with seasonal sales volumes, which help merchants during slower seasons. This allows merchants more flexibility during non-peak sales systems, as payments are based directly on sales volumes for credit and debit card sales.

There are three types of repayment methods when using a merchant cash advance.

  1. Split Withholding – This method splits the credit card sales between businesses and the finance company, generally ranging between 10 to 22%.
  2. Lock Box or Trust Bank Account Withholding – The credit card sales are deposited into a bank account, which is controlled by the finance company, which is then forwarded to ACH, EFT or wire. This results in a one-day delay, making it the least preferred collection method.
  3. ACH Withholding – The financing company receives all credit cards processing information and directly deducts a portion from the businesses’ checking accounts via ACH. The finance company then debits fixed amounts regardless of businesses’ sales.


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