Growing Industry: Merchant Cash Advance

Merchant cash advances were originally created as a way to avoid all of the red tape and regulations involved with business loans; many providers are increasingly trying to promote industry wide ethical standards to avoid scrutiny and keep the money flowing to small business owners.



If you are a small business owner and you need quick access to working capital, there is a growing industry that is more than happy to fund you. Sometimes called credit card factoring; the merchant cash advance industry started about ten years ago. The amount of providers has nearly tripled in recent years, partially because of the so-called credit crunch.

Originally created as a way to avoid all of the red tape and regulations involved with business loans; top tier providers are increasingly trying to promote industry wide ethical standards to avoid scrutiny and keep the money flowing to small business owners.

As it is, the merchant cash industry has relatively few players. If one of the providers begins to perform less than reputable business practices, word would get out. If these practices continue; it will be increasingly difficult for that provider to do business.

Forecasters see plenty of room for growth. One BusinessWeek article states that providers have only penetrated about 10% of a market potentially worth about $10 billion.

The difference between a merchant cash advance and a business loan

There are some key differences between a business loans and a merchant cash advance: A business loan gives you the cash based on a fixed interest rate and a fixed payback schedule. Each month you will pay back the same amount until the loan plus interest is paid off.

With a merchant cash advance there is no fixed payback schedule. They receive a set percentage from the daily credit card sales until the advance is paid off. Usually in 6 to 9 months. One of the key benefits to this kind if schedule is that because the amount they pay varies with their cash flow, they pay less in slower months. This creates a flexible payback schedule that protects the business during slow periods.

It is these differences that keep them from being regulated. It is also why they need to be so vigilant against bad business practices. If it were not for merchant cash advances, many businesses would not be able to get the funds they need to keep operating.

A merchant cash advance may not be the first choice for most businesses. But for many businesses it is their only option.