What Is a Merchant Cash Advance?
A merchant cash advance is a lump sum of money given to a merchant, usually a small business, as a loan. An January 2009 article in Business Week states that the merchant cash advance industry is a young and growing industry due to a reduction in numbers of traditional credit providers, with more than 50 merchant cash advance providers at the time of writing.
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Loan
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The loan is paid back with the cash advance provider company taking a percentage of credit or debit card sales on a daily basis until the principle amount plus interest is paid back, usually within a year.
Interest
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The interest rate is usually significantly higher than the interest rate given with a typical loan. According to business week, some providers charge interest between 60 and 200 percent APR. Merchant cash advance providers typically target those companies who have high credit card sales accompanied by bad credit with little or no collateral.
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Considerations
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The merchant cash advance business is growing due to a reduction in business loans as a result of the credit crisis. According to Business Week, this increased scrutiny has lead to more merchant cash advance providers attempting to promote industry standards to avoid scrutiny.
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References
- Photo Credit cash image by Alexey Klementiev from Fotolia.com
