How a Merchant Cash Advance Works

Written by on July 1, 2011 in Business Insights, Finance And Lending - 1 Comment
Cash in hands

While blogger Dave Choate is on vacation, we’ll be digging up some gems from PointBlank’s past. Enjoy!

Many franchisees often encounter a situation where they need quick access to capital in order to cover operational needs like inventory, utilities, marketing expenses, remodels, expansion and great business opportunities. With fewer banks issuing lines of credit or business loans, the past 10 years have seen a growth in the number of companies offering merchant cash advances. With so many cash advance providers, it’s easy for a franchisee to become confused. With that in mind, here’s a quick primer.

A Merchant Cash Advance Isn’t a Loan

A Merchant Cash Advance isn’t a loan; it’s a lump sum advance for a share of future credit card sales. A cash advance of this type is meant to be an immediate infusion of capital, which is then re-paid through credit card transactions. Instead of regular fixed payments, the cash advance provider will take a set percentage of your daily credit card sales until the advance is recovered. The advantage here is that you pay less during slower months.

Merchant Cash Advances Focus on (future) Business Performances

There are many reasons to consider a Merchant Cash Advance – you may have poor credit, you may be unable to secure a traditional bank line of credit, you may have a fast-moving business opportunity you want to seize.  Because the Merchant Cash Advance is re-paid as a percentage of sales, your cash advance provider will be more focused on the performance of your franchise location, and not necessarily on your personal credit.

Best Uses of a Merchant Cash Advance

While the cash from a Merchant Cash Advance can be used for any expense, the best uses of a cash advance are for expenses that will provide a return on investment. Equipment, business expansion, inventory, or advertising are great examples of way to use the capital.

Minimal Paperwork

Typically, the funding process is fairly painless. Cash advance providers will usually ask for a few months of bank statements and a few months of processing statements, along with a completed application. You should have a response from their underwriters within 1 to 2 business days.

The Merchant Cash Advance Provider Assumes the Risk

Because there’s no set time for a pay-off, the lender ultimately assumes the risk of when they will recover the advance. The payments are automatically made on a daily basis, so there’s no late fee for the merchant.

Do Your Homework

Many cash advance providers will have different terms to their Merchant Cash Advance contracts. Make sure to read the fine print looking for fees, what percentage of sales is being paid to the lender, or if there is any collateral attached.

Get Started Today

If quick access to cash is currently a need of yours, contact Direct Capital to speak with one of our Franchise Finance Managers about your options.

Photo credit to kwod at

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