Merchant Cash Advances - What and How

Henry Githinji

Henry Githinji

Henry plans to be an entrepreneur with his own financial consultancy firm, specializing in in binary options and stock trading. Henry is a day trader and plans to use the capital he makes to launch his business. He plans to build a portfolio that attracts investors through his trading performance.
Henry Githinji

What is a Merchant Cash Advance?

Merchant Cash Advance

Merchant Cash Advance

A Merchant cash advance is a way for a company to get cash from credible lenders whilst minimizing the fear of having a bad credit score. Collateral is not required when applying for a merchant loan. Merchant cash advances are short term loans which are paid via through credit card receipts. The lender usually agrees on the percentage deducted from the buyer’s credit card account on a daily basis.

How They Work

Among the many types of commercial loans, merchant cash advance loans are the fastest loans to be approved and awarded. However, you will need to share your credit card sales with your lender because merchant cash advances are paid back this way.  When you initiate your loan a premium is added to the loan amount to determine what must be repaid in total. Depending on your lender, fees may range between 15% to 80%. The repayment time is usually between 8-9 months. The higher your credit sales the shorter the time frame is needed to repay your loans.

Short Explanation

Let’s take an example and calculate the exact amount repayable. So let’s imagine Jim borrowed $20,000 and agreed with a lender to have a “fix factor” rate of 114. At the end of the loan, Jim pays back $22,800. Affordable right? This might look like 14% interest but if Jim repays it over 9 months it is actually much higher. Not only is the interest rate seemingly 3/12ths higher than the 14%, Jim pays it back throughout the 9 months meaning his average repayment period is just 4.5 months. This means the annualized interest rate is actually closer to 40%

Advantages of a Merchant Cash Advance

Advantages of Merchant Cash Advance

Advantages of Merchant Cash Advance

Despite the high-interest rates, there are many benefits that come with a merchant cash advance.  Some of these advantages include:

  • The company need not need to have a good credit card history to qualify for this loan.
  • The company doesn’t need to send money from its account to the lender. You have no need to worry about initiating repayment since cash is deducted from your credit card sales and this makes it easier to repay loans unlike in traditional banks.
  • It is generally speaking faster and easier to get merchant cash advances.
  • Remitting cash is automatic, and you do not need to use any checks or transfers as opposed to traditional banks.
  • You may not lose anything if you fail to pay. This is because you do not secure your loan with collateral. These loans are unsecured business loans.

How To Get a Credible Merchant Cash Advance

Many companies that process credit cards work together with lenders which issue these loans. This is because lenders are repaid via a percentage of your daily earnings. Due to these factors that are in play, you are safe in giving out whatever information is required. However, always be on the lookout for scams.

Lenders have the privilege of knowing how much a business makes, and therefore, can determine the amount of money they can give out as a loan and the repayment schedule. However, the borrower always has a say in these matters.


In conclusion, depending on your circumstances merchant cash advances may be the best sources of borrowing. They are delivered in time, have flexible repayment schedules and do not rely on your credit card score.

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