A merchant account cash advance allows a business account holder to borrow true currency against future sales. Unlike a consumer or individual credit card cash advance, in which the amount of cash that is available for such an advance is typically a small percentage of an account holder’s overall credit limit, a merchant credit card account Cash Advance allows a much larger cash sum loan based on the business’ forthcoming credit card and debit card sales.
The issuing bank enacts an automated process by which they retrieve a fixed percentage from individual sales of the business as each one is settled upon to pay back the cash advance merchant loan. Once a banking representative approves the cash advance loan amount, these funds are transferred to the company’s checking account or other specified account to be used like regular funds.
A merchant credit card cash advance is considered an “unsecured loan,” one that is issued by the bank and supported only by the merchant borrower’s credit value – in this case, based on succeeding sales – rather than forms of traditional personal collateral. In general, a merchant borrower must have a high credit rating in order to receive such an unsecured loan.
Traditional small business loans – the most common and often first sought after type of merchant loan – can be difficult to secure for small companies. Most merchant credit card cash advances are not discreet loan products sold by banks that require absolute repayment but instead are based on the deal set between the merchant and banking representative.
Cash Advance Spending
Credit card cash advances are indeed expensive compared to other types of merchant loans, but their immediate value is certainly worth it to businesses that are expanding or are in the process of deep reformation. Very often, the kind of cash that merchant credit card advances provide in a relatively short period of time can cover some very important costs, such as when companies create new branch or satellite offices, or when new business partners formally come into play or exiting partners require a buyout to leave during a new formation. Also, many small manufacturing companies could use this new influx of cash to purchase new equipment, increase their product lines, or create comprehensive advertising and marketing campaigns.
For most merchants, a vast majority of banking institutions require that small businesses retain a consistent amount of business in which they process over a few thousand dollars in transactions per month. Most businesses are also required to have been in operation for at least one year or longer, depending on the nature of the company. Many banks, of course, need lengthy business history records as well. In most cases, terms are open – allowing a business to pay more to clear its debt if business is doing well or less if it is not.
The Price of Cash Advances
Regular fees and charges applied to most cash advances are never hidden. National and state law requires credit card issuers to disclose information about every fee and charge associated with all of their services. This information is almost always displayed on the back of the solicitation form and on the monthly credit card statements, as well as in the merchant contract. Annual fees, application fees, withdrawal and deposit fees, statement fees, balance inquiry fees, cancellation fees and even fraud resolution fees are all common expenses attached to a cash advance service transaction.
Cash advances are largely expensive endeavors to undertake and if possible should only be done infrequently for a number of reasons. Whenever a merchant account holder receives money through a cash advance, it will, of course, be added to the overall amount owed to the issuing bank. This includes typically high interest rates and subsequent payments that can eliminate the advance’s initial benefits. These interest charges mount immediately upon the cash advance transaction and cash receipt.
In addition to the percentage of merchant future sales recouped by the bank, there is usually an upfront fee for cash advances that range from 2% to 4% or more of the entire amount borrowed. Cash advances also almost never retain a grace period.
While it is known that credit card issuing banks charge steep fees for cash advances, there are two outstanding reasons for this coverage: such cash transaction always cost more to process than common credit card transactions and there is a significantly high rate of default amongst frequent cash advance account holders. These fees are ultimately, though unfortunately, passed along to banking clients.
Cash Advance Services
There are a fair number of current cash advance services available. Outside of common banking institutions, there are several other local and national outlets online and in major publications which offer these services. Since the variety and the numbers of these providers is substantial, it is advised to contact a local branch of The Better Business Bureau (BBB), which can always help borrowers determine which companies are legitimate and which are disreputable.
Payday Cash Advances
Merchant cash advances should not be confused with what are known as Payday Loans or Payday Advances, which are small, short-term loans that are intended to cover a working borrower’s expenses until his or her next payday. These are also commonly referred to as cash advances.