Merchant Cash Advance: Part 2

Part 2 – Merchant Cash Advance Qualifications 

In part one, I talked about what a merchant cash advance is.  In this segment, I will cover the merchant cash advance qualifications.

A cash advance provider will look at your monthly sales volume and your monthly credit card processing volume to determine maximum advance amount.  Typically, the advance amount is equal to your monthly credit card volume and sometimes your monthly sales volume.  The providers use your credit card volume as proof of sales.  You can submit bank statements if you want to go the ACH route or if you want a bigger advance.  

A standard cash advance will be tied to your credit card processing.  Once you have received your funds, the provider will activate the daily retrieval rate.  Your provider will capture a percentage of your daily card charges.  You can expect to pay a daily retrieval rate from 10% to 30%.  The payback period on a typical merchant cash advance is 6 to 9 months.  Since you do not have a fixed payment, the payback period may vary.  Longer if sales are slow.  Faster if sales are high.  

The merchant cash advance qualifications are on the one hand strict and on the other much more lenient than a bank loan.  Let me explain.  Merchant cash advance providers will provide funding in cases where the merchant has bad credit, or been discharged from a bankruptcy or is even in a Chapter 13.  Your bank will definitely not loan to you in these cases. 

 This makes merchant cash advance a viable option for funding for those situations.   

On the other hand, merchant cash advance providers will primarily fund retail and restaurant type businesses.  If your business is homebased, internet based, or phone sales, you will not qualify.  And if you do not accept credit cards or have a low monthly credit card volume usually less than $5000 a month, you won’t qualify as well.  

The good news is that if you have a restaurant, you will have a much easier time getting approved and receiving funds than if you tried to get a loan from your bank.  The majority of cash advances happen to be restaurants.  

There are some other qualifications to consider.   

• At least 15 batches (card settlements) per month

• Been in business six months or more

• Able to provide six months of credit card statements or other financial documents

• If  you already have a merchant cash advance, 50% must be paid off to get another one. 

• No open liens in excess of $25,000 ( the amount may vary)

There are some exceptions to the qualifications.  You have to keep in mind that these are private unregulated providers of working capital.  They want to get paid back.   However, the provider makes the final decision and can ignore any of the qualifications if he so chooses.  Remember it’s his money.  If your business has great cash flow and monthly revenues, but very little credit card volume, you can still qualify for a merchant cash advance through an ACH program.  

Once you’ve been approved for an advance, the provider can electronically deposit or ACH the money quickly into your account. The money is yours to do with as you please.  However, it is highly recommended that you put that money to strategic use to improve and grow your business.  

In the third part of this series, I will talk to you about how a merchant cash advance works, the daily retrieval rate, the lock box and ACH solutions.

Next entry

Previous entry

Related entries

Similar entries

Facebook Google Plus Linked In Twitter Youtube