The Ins and Outs of Merchant Cash Advances

Apr 15, 2014
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Merchant cash advance providers cater to small businesses that need quick access to capital. While this seems like a great idea, there of course is a catch: Interest on these cash advances can be as much as 30%. These rates seem high, and there is actually a way to where they can charge these high interest rates without attracting attention.

Merchant cash advance companies take pains to point out that advances are not loans; instead, the deal is a “purchase and sale of future income”. That means that laws that regulate lenders and limit interest rates do not bind merchant cash advances. Instead of requiring regular fixed payments, they directly collect a set percentage out of a merchant’s daily credit card sales until they recover the advance and their premium, usually in fewer than 12 months. At times, these are the only option for new businesses, or businesses whose owners have poor credit or a bankruptcy. Banks are hesitant to lend to business owners under these circumstances, and merchant cash advance companies are a welcome relief, despite their interest rates.

Every industry has bad eggs, Industry leaders say they are trying to promote best practices to avoid attracting regulators’ attention. However, thanks to high interest rates, and the ways that cash advance companies get around the interest regulations, these companies are used to being on high alert for audits and investigations. However, the majority of these businesses are looking out for you, the business owner, and are not out to operate a scam.

There are different programs out there for the business owners and some due diligence on your part could steer you in the right direction. For example if you do not want a percentage of your daily sales held back or your current merchant processing tampered with, then you do not need a merchant cash advance. There are small business loans with payback factor rates a lot cheaper than merchant cash advances, if you have the credit to afford it. Regardless of the method you choose to help fund your capital, be sure to thoroughly research your options, as making the wrong choice could greatly impact your business.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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