As any small business owner can attest, it can take significant time to become profitable after launching a company. That means cash flow can be nearly non-existent in the early years. One way that many business owners have chosen to work around this challenge is by obtaining a merchant cash advance. This is an advance based on average credit and debit card sales.

How Merchant Cash Advance Providers Evaluate Applicants

After receiving an application, a merchant cash advance provider will request credit and debit card receipts to help evaluate it. The loan processor will determine an average daily total to determine if the applicant earns enough to repay the loan in a timely manner. One thing that businesses receiving this type of loan really appreciate is fast processing. If approved, they can have the funds in their bank account within 24 hours. However, it’s important to evaluate all loan options since the interest rate on this type can be quite high.

Understanding the Holdback Amount

When the lender applies a holdback to credit and debit card receipts, it means that it is reclaiming a percentage of the total and applying it to the loan. The typical holdback amount is between 10 and 20 percent until the borrower has completely repaid the merchant cash advance. The amount fluctuates to account for the fact that cash register transactions can vary considerably from one day to the next. Borrowers should keep in mind that the interest rate charged for receiving this type of loan differs than the holdback amount.

Types of Businesses That Could Benefit from a Merchant Cash Advance

This type of business loan obviously isn’t right for everyone. Businesses that serve the public directly and have employees to operate cash registers will benefit the most. Typical examples include retail stores, restaurants, and hair salons.

Please contact Fast Commercial Money if you are considering this type or another type of loan for your business.