Merchant Cash Advance: Part 1

Part 1:  What is a merchant cash advance?

This is Dana Barrett  with, where we help small merchants get a better deal.  Today, I’m going to discuss Merchant Cash Advance:  Is it right for your business?    This is the first part of a four part series. 

More and more businesses are turning to alternative forms of credit, because banks are not lending.   A recent study by Pepperdine University revealed that 60% of small business bank loans were denied in 2011.   To pick up the slack, private capital providers have stepped into the market.   

Cash advances are not considered loans.  They are funds provided based on a borrower’s future sales.   This is a big distinction because cash advance providers are not subject to state usury laws or any of the restrictions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The main reason is that the provider is basically buying your receivables.  A bank loan is money provided to the borrower usually at a fixed rate of interest and securitized by some form of collateral.  Loans are highly regulated by State and Federal governments.  If the loan is collateralized it must be registered with the state under the UCC code.  Cash advances are unsecured.  They are not registered with the state and since they are not a loan, they don’t go against your credit score.  

Merchant cash advance companies unlike your bank are mainly concerned with your cashflow instead of your credit score.  This explains why even if you have bad credit or a bankruptcy, you are still likely to be approved for a merchant cash advance.  

In the second part of this series, I will talk to you about how a merchant cash advance works and the qualifications. 

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