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How Merchant Cash Advance Programs Work

It is often challenging for business owners to maintain sufficient cash flow, especially when the company is new or they personally have bad credit. The merchant cash advance is the ideal solution to this problem. This is a merchant account that is repaid through fees from credit card processing. The business owner receives a lump sum upfront without having to submit to a credit inquiry. However, he or she must have a certain amount of credit card transactions per month to ensure adequate capital to repay the loan. Each lender sets its own criteria and will discuss it with the business owner at the time of application.

How to Repay a Business Loan Through Credit Card Processing

After a business owner receives a loan, the cash advance lender sets up the credit card terminal to divert a portion of every sale towards loan repayment. This method of repayment is effortless for business owners because they don’t have to remember to make a loan payment every month. It allows them to repay the loan a little bit at a time with money that they never even see. Seasonal businesses may be able to establish a repayment program that takes a greater percentage of sales during the busy season and less during the leaner months.

Considerations Before Opening a Merchant Account

It the responsibility of the business owner to compare the interest rate and terms on a merchant cash advance with other types of loans that may be available. If the business owner has bad credit, his or her options may be limited. Even if a bank agrees to a small business loan, it is usually at a higher rate of interest and for a shorter term.

Small business owners should not make a habit of borrowing against future sales as it can be a difficult cycle to break. They should evaluate their needs and only borrow when they are certain the loan amount will bring in the revenue they need to grow and expand their business. A merchant cash advance can help do that if the business owner does not come to rely on one right after the other.


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