Credit Card Processing with Cash Advances

In these economically challenging times, it’s harder than ever to get a small business loan.  Almost every business experiences the need for some extra cash flow at one point or in another, whether it’s to even out a temporary lack of sales or to expand your business.  Even if you qualify for a small business loan, you may find it takes a month or more before you have the money in hand, and by then you could be in trouble!  What you may not know is that many credit card processing companies also offer cash advances to their clients.

Cash Advances Through Your Credit Card Processor

Many credit card processing companies will give their customers a merchant account cash advance.  You apply for the cash advance through your credit card processing company, similar to a loan, and if approved the money is deposited into your account to use for whatever purpose you need.  Some business owners need cash to even out cash flow problems, make payroll during a slow period, or to purchase new equipment or inventory.  You can apply for a merchant account cash advance for any financial purpose.

The credit card processing company then determines if you are eligible for the cash advance by looking at your credit card transactions.  If you have sufficient sales volume, they will approve your application and deposit the money for you.

Repayment of Processor Cash Advances

Merchant account cash advances are repaid from the money you receive through processing credit cards.  You will pay back a fixed percentage of every credit card transaction you make, with an agreement that the total loan amount will be repaid within a set period of time – usually about 12 months.

Paying back a merchant account cash advance based on a percentage of credit card transactions is ideal for business owners who may have fluctuating sales volume – since making a regular loan payment requires you have the same amount of money available each month to pay, where as a merchant account cash is a percentage of sales processed.  When your sales are lower, then the monthly payment you have to make is lower.  The payment arrangements of this type of business lending is a much lower risk for the business owner who just needs some additional cash, but isn’t sure how much of a monthly payment he or she can afford consistently.

Benefits: Business Cash Advances

Cash advances for businesses can alleviate any cash flow problems you may run into from time to time.   If you don’t have access to another source of funds if your sales volume decreases, you may be forced to reduce your inventory or lay off employees – or worse – go out of business.  Choosing a credit card processing company that can also provide a cash advance is a good idea for those lags in sales that could really cause your business to struggle.  You can deposit the advance into an account to use as a line of credit whenever your sales dip too low to pay your expenses and/or payroll.  Repayments will come out of your future credit card sales.

Potential Disadvantages

Despite the advantages and benefits of a merchant account advance, it is not without it’s potential disadvantages.  Interest rates on the money borrowed is generally higher through a merchant account advance than through a bank – but for many small business owners, a traditional bank loan is not possible so it may be worth paying a little more for access to the money you wouldn’t have otherwise.

If you’ve been looking to grow your business but need cash to get things going – a cash advance from your credit card processing company is convenient.  You get the money faster than a traditional loan and the payments are conveniently a percentage of your sales.

Posted on Monday, September 27th, 2010