Crown Financial Services

When a small business needs funds quickly, a merchant cash advance offers unlimited flexibility. Also, it’s easy and exceptionally fast.

80% of all small businesses fail during the first year. 92% are unable to get traditional financing from banks. But restaurant and retail operations, or any business that accepts credit cards as a form of payment, can now get a merchant cash advance on expected future credit card sales. And many smart companies are using that option to stay afloat.

There are as many different needs for a merchant cash advance, or credit card receivables financing, as there are small businesses operating today. For example, a restaurant owner who can’t quite make payroll may survive the crisis and keep his doors open with a merchant cash advance.

A mom and pop hardware store could suffer a flooded basement or damaged piece of equipment or loss of inventory and need to make an immediate and often substantial expenditure. Even when these extra expenditures are covered by insurance, there might be a lag time until reimbursement. This is where a merchant cash advance can become a small businesses lifeline.

Then, there’s just the unpredictability of running a business on a day to day basis. Routine occurrences, like a slip in sales because of bad weather or a shutdown during a power outage, can cause a significant cash crunch.

Small businesses also may need an influx of cash for a growth opportunity. If a hair salon is looking to expand its services and become a day spa and the space next door suddenly becomes available, the owner will need money to renovate. With a merchant cash advance the owner could have the needed funds in hand in just 5-7 work days.

The advance amount the merchant can receive is determined by calculating the company’s average monthly Visa and MasterCard credit card sales for the past six months. The level of financing ranges from $5,000 to $1,000,000, and funds can be obtained in as little as a week.

The loan amount is typically 100 percent to 150 percent of the average monthly Visa/MasterCard volume. Cash is also used as the basis for the loan in certain situations, such as diners, pizza places, and sandwich shops. The bottom line: The merchant’s monthly payment should be in the neighborhood of 10 percent of his total monthly volume, including cash, and Visa/MasterCard.

Loans generally average $35,000-$50,000, and the loan is paid back within 5-12 months. After the merchant pays back the loan, he has an opportunity to renew the arrangement again.

Payment is simple. The merchant cash advance funder will work through a credit card processor to draw money from actual profits as payments are made using credit cards. Or, the merchant cash advance funder may draw his payments directly from the merchant’s bank account once the credit-card payments are deposited there.

It’s beneficial for the merchant to hire a consultant in the cash flow industry who knows what each of the merchant cash advance funding sources requires and can help the merchant find the best match.

In addition to helping locate the most appropriate funder, cash flow consultants can help the merchant fill out the application. The funder’s underwriting department will then pre-approve the merchant’s application, working on the assumption that the information on the application is correct. The pre-approval process generally takes 48 hours or less. After all the information is verified, the deal can be financed, typically, within 5-7 days.

Merchant cash advance financing can be a great way for a small business to get the cash it needs to grow, or to get through a particularly difficult time. For many small businesses, it may be the only source of funding that will help it survive.

This entry was posted on Thursday, October 18th, 2007 at 10:22 am and is filed under Merchant Account Advances. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.