Cash Flows From Collections On Credit Sales Are Usually Reported The Merchant Cash Advance Industry

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The Merchant Cash Advance Industry

Introduction

The merchant cash advance industry provides working capital to small and medium-sized businesses that need financing for reasons such as purchasing new equipment or inventory, expanding or remodeling, paying off debt or taxes, or emergency financing. The trade advance industry has grown rapidly in recent years as the credit crunch left businesses unable to tap into conventional sources such as banks and commercial finance companies.

In advance

The nature of the merchant cash advance product requires business owners to have a positive need for this alternative financing product. While a merchant cash advance is not a loan product, the SBA (Small Business Administration) caters to a similar audience as the MCA (Merchant Cash Advance) industry. The traditional advance product insures an average volume of visa/master card over a period of four months. Unless it is a cyclical transaction, the same monthly average will apply to the last twelve months of processing. The essence of this product is the factoring of future credit card receivables. There are usually no personal guarantees or insurance. Since this is not a loan, there are no conditions attached to the purchase agreement. The company is actually agreeing to sell a portion of its future credit card swipes today for a discount. The arrangements are typically structured around repayment assumptions, typically estimated over a six- to nine-month repayment cycle. Payout is very simple. The merchant agrees to a small hold on future credit card transactions. This process continues until the principal is paid off.

Business

Business loans are becoming more and more challenging, so the emergence of the Merchant Cash Advance industry is booming. Business cash advances come with fast approval and even faster cash in the merchant’s bank account. Taking out insurance is very simple. The advance does not appear on the owner’s personal credit. Businesses continue to show a need for the Merchant Cash Advance product. Business Week reports that the merchant cash advance industry jumped 50% in 2007 to about $700 million.

Merchant

Marketers want to know how it works and what it will mean for them. The business owner must use the provider’s credit card processor because the advance is automatically returned as a percentage of the proceeds of each series. Business cash advances are undoubtedly more expensive than traditional bank loan financing; it is simply an alternative to the tedious applications for banks looking for all kinds of insurance for the business and personally for the owner. This is a quick financing option that uses future sales, so no down payment insurance. Cash providers claim they can continue to collect on credit card receipts even after a business has filed for bankruptcy (when the automatic stay protects the business from most debt collection attempts). Credit card financing is becoming one of the fastest growing financial niches in the US. Cash advances aren’t just for small merchants, programs are available up to $5 million.

ACH (Automated Clearing House)

This program recently began providing an alternative to credit card debt sharing. It is hedged against bank cash flow. Repayment also from a bank account, with a fixed charge daily on bank business days.

The program also funds non-traditional SIC codes of various types of businesses, such as attorneys, accountants and other businesses that do not typically process credit cards.

Launcher

The entry-level market has developed rapidly over the past three years. It basically covers all the downtime of a regular credit card prepaid program. This program is for businesses that cannot qualify for traditional promotion. Less than one year in business, the program finances open liens, bankruptcies, foreclosures, judgments and high-risk industries.

Conclusion

As long as there are businesses that need fast cash, reliable and unsecured capital, the cash advance industry will continue to grow and evolve. The cash advance industry is only about 10 years old and has about 400,000 companies funded nationally.

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