5 Things You Need to Know About Merchant Cash Advances
You are here:
Merchant Cash Advance

5 Things You Need to Know About Merchant Cash Advances

As a merchant, it may occur to you to opt for a cash advance loan. Subsequently, you may wonder:

  • What is a cash advance?
  • Which types of cash advances are recommended for you?
  • Can you apply for an online cash advance?

Simply put, a cash advance is an instant monetary help that lets you keep your business up and running. From different kinds of cash advances, a Merchant Cash Advance is the most suitable for you, considering your funding needs. These days, a few providers in the United States can facilitate you with instant cash advances online.


Understanding Merchant Cash Advance

Before looking for a cash advance service, you should grasp the varied concepts and factors involved. Merchant Cash Advances offer short-term financial relief to businesses that experience consistent credit card sales. The basic theory is that you instantly receive a certain amount of cash and its repayment is levied through your future sales.

Here are 5 things to throw light on the usage and benefits of Merchant Cash Advances:


1. How Do Merchant Cash Advances Work?

A merchant cash advance is directly related to the quantum of sales and revenue you generate via credit cards. A small portion of your income is automatically taken as a part of the repayment process. Cash advance processing companies directly tie up with the credit card terminal provider, unless your credit card processing entity also offers cash advances.

This is how a cash advance works:

  • Cash advance service providers lend money instantly. The amount depends on your average earnings through credit card payments and your ability to repay.
  • You can use this cash for any purpose, provided that your repayments are regular. Depending on the provider, your repayment is adjusted on a monthly or daily basis.
  • The provider may view your business cash flow to be sure of the potential repayments. Otherwise, there are no credit verifications or bank history involved.

The best thing about a cash advance is that the repayment is tailored as per your income and sales. Hence, there’s no question of undergoing any heavy liability as the repayment percentage is proportional to what you’re already earning through credit card payments.


2. Why are Merchant Cash Advances Expensive?

Financial services tend to factor in the lending period and repayment terms when shelling out loans. In the case of merchant cash advances, there are no collateral or credit checks involved. Moreover, these are instantly handed over to the businesses with nominal portions of the sales levied for repayments. Thus, such factors make cash advances expensive, however, the short-term cash facility is responsible for steadying the ship for you.


Cash Advance Fees

A cash advance comes with an on-spot fee along with the interest. The on-spot fee may be charged in the form of a fixed percentage or a flat amount. Depending on the cash advance merchant service provider you choose, the fees may vary.

The repayment via interest begins from the first day itself when you receive your cash advance. As compared to other financial services, cash advances come with interest rates ranging from 15% to 30% APR.

It’s important for you to thoroughly go through the terms and conditions while applying for a merchant cash advance. Also, you should check if these terms and conditions are suitable for you and your business.


Illustrative Costs

As an example, if your credit limit is $1,000, your cash availability will probably be $200. Considering that the transaction fee is 4% and there are no other purchases, you will pay $8 on the spot and approximately $4 to $5 as the monthly interest if it’s being charged at a 25% APR. You’d be paying in total around $50 as interest on a cash advance of $200. Also, ATM withdrawal of cash advance or getting a cash advance in a foreign currency can incur additional costs too.


3. Why and When Should You Opt for Cash Advance Services?

Cash advance services come in really handy when your business is in need of instant funds on a short-term basis. It carries a variety of benefits and purposes for merchants, making business operations smoother and easier.

Major Benefits of Merchant Cash Advance Services


Rapid Fund Transfer
Merchants can receive their cash advance fund within a maximum of 7 days from the date of applying.


No Hassle of Documentation

There’s an extremely minimal amount of documental formalities and no major credit history assessments in the case of cash advance services.


No Collateral Needed

The best part? Cash advance applicants do not need to provide any collateral against the funds received. Hence, there’s no risk involved as far as losing any asset is concerned.


Basic Use Cases of Merchant Cash Advance Services

Merchant Cash Advance Services help business owners in many ways and are availed for several reasons:

  • Increasing Business Cash Flow
  • Restocking Inventory at Deep Discount
  • Managing Uncertain Expenditures
  • Managing Business or Personal Debts
  • Temporarily Accumulating Working Capital

As it demands no collateral and simply depends on your sales (through credit card payments), cash advance services may be categorized as relatively expensive.


4. Does a Cash Advance Impact Your Credit Score?

Directly, there’s no impact whatsoever on your credit score when you opt for cash advance services. However, there are some situations that can indirectly affect your credit score.

For instance, when you purchase cash advance services through a credit card, your outstanding amount will rise. This further increases your credit utilization ratio. If you’re already owing approximately 33% of your credit card limit and withdraw additional cash advance, this ratio rises. Anything beyond 40% as utilization ratio may adversely affect your credit score.

Another simpler way of impact is the non-payment of outstanding cash advance amounts on time. When this amount exceeds your credit limit, your credit score can dip further down.


5. Are You Eligible for a Merchant Cash Advance?

Becoming eligible for a merchant cash advance is one of the simplest factors. Compared to other financial services, getting a cash advance is quite easier and comes without the need to prove a good credit history. Instead of a business profile, only the quantum of your credit card sales matters.

Some merchant cash advance service providers enable online applications to enhance and make it more convenient for applicants.


Choose the Right Merchant Cash Advance Service Provider.

At Patel Processing, you get a cash advance with amazing benefits! You only need to pay according to the amount of business you do per day! Your repayment amounts and the cycles are determined by exactly how much you earn via credit card sales.

To know more about our cash advance services, contact us now!