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how to get out of a merchant cash advance

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how to get out of a merchant cash advance

The growth and sustenance of a small business depends on the cash flow and starting capital. Therefore, a merchant cash advance provides some money in advance against the basis of credit card sales which shall undergo processing in the future. It’s not a loan, however, the merchant providing the money shall assess the number of credit card sales you have had in the past and process the sum they give you as an advance on those sales.

The lump sum amount is automatically repaid daily, and a certain percentage is charged denoted as `Holdback.’ This amount is dependent on the period of repayment, the amount of credit card sales, the magnitude of your advance and the size of the business. Usually, the repayment period spans over a certain period, and they begin as soon as the money is received.

Merchant cash advance are not suitable for every caliber of a business. Although they are most appropriate for the business that requires quick access to cash and has solid credit card transactions history. Henceforth, they are a seemly fit for a new company that has streamlined cash flow such as restaurants that have not been in operation for long periods, but have a stable income.

Nevertheless, a merchant cash advance is not considered as a loan because it’s not assigned a termly percentage rate, instead the business proprietors pay a `factor rate’ agreed upon on collection of the funds usually ranging between 1.1 and 1.5 expressed in decimals. This makes the merchant cash advance look appealing. However, it’s important that you consult a financial advisor to assist you in understanding the often misinterpreted¬†factor rate. The keynote is to negotiate a lower holdback amount that will be sustainable in the long run at the end of the year be able to balance the annual percentage rate.

Advantages of a Merchant Cash Advance

There several features associated with merchant cash advance that seem to attract more and more business owners. They include the following:

Funds are Processed Rapidly

When your business is in urgent need of cash injection, the merchant cash advance provides a fast option of approval for the funding. The lump sum amount is processed as fast as within 24hours, enabling you to fund impending business obligations.

They do not discriminate on Credit Score

Even though the lender uses credit card sales to assess the span of your business, they are a bit more relaxed on the credit rating or other core factors that most business loan providers may consider before approving the loan. In fact, a merchant can advance the cash even if you are carrying another debt. It’s important to note that they do not add to your credit score rating.

Collateral is not a Requirement

Most loans from financial vendor’s source for security against borrowed funds in the form of insurance in case you default on the loan. Merchant cash advance is unsecured and does not require any collateral to be put on the line.

Substantial Borrowing Limit

Depending on the merchant, you can be able to access higher borrowing limits according to your understanding between the business owners. Thus, it becomes apparent that the amount is relevant to change, and the payments are flexible, enabling business owners to operate conveniently.

In light of these benefits, the merchant cash advance becomes a viable option for most business owners. Nonetheless, there is also a downturn to the merchant cash advance.

Con of the Merchant Cash Advance

The benefits are numerous and certainly outweigh the drawbacks. Although, the main downturn of merchant cash advice is that if you are not careful and become susceptible to higher holdback payments, the gains will be less than the projected outcomes of the business. Hence, it’s essential to have calculated the expected income generation before engaging the merchant cash advance.


The merchant cash advance is a reliable capital provider for business owners that deal in fast moving goods and retail since it offers cash fast and enables the venture to remain afloat. However, there are other forms of funding that you can consider especially if you have an excellent credit rating. Nevertheless, the above option is an excellent choice with the right management and understanding of the principles behind the proper administration of the borrowed funds.

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