HOW DO THEY WORK?

A merchant advance is a lump sum of cash paid back through your processor by taking a set percentage split off of your daily credit card sales. You are basically monetizing your receivables by selling them at a discount to the funder.


WHAT DO THEY COST?

Paying back your balance through your credit card sales may dip into your cash flow more than a term loan because merchant advance payments are more frequent, are variable with sales volume and have a fixed payback which limits your flexibility for an early payoff. Merchant advances start at a 1.09 factor rate, and the cost depends in large part on the specified percentage of your future receivables taken by the funder on a monthly basis.


WHEN WOULD THEY MAKE SENSE?

For businesses that make a big portion of their revenue through credit card sales, they can use a merchant advance as a short-term funding tool. Instead of a loan with set payments, a merchant advance fluctuates with your business' daily sales, so you pay more when business is good and less when it's slow. Seasonality is a big factor in considering taking a merchant advance.


WILL I QUALIFY?

If you have little or no collateral, limited credit or low credit, etc., or need quick cash in the next couple of days, merchant advances could be your best option because they tend to have easy approval criteria. Businesses that generate consistent revenue through credit card processing should qualify for a merchant advance.