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A business cash advance, sometimes called a merchant cash advance or a business cash advance loan, can be an easy way for a business owner to get quick cash without the long wait times or arduous application process required for traditional bank loans. The entire process, from application to advance disbursement, usually takes less than a week. Cash advances are automatically repaid as a portion of daily credit card sales transactions.

In a cash advance transaction, a business exchanges future revenue for an immediate cash payment. Cash advances operate similarly to loans in that a balance is paid back as a series of installments. Cash advances are expensive. The provider fee is expressed as a percentage of the advance amount, and can be anywhere up to 80%. Common provider fees range from 25-30% for most businesses. You pay back the advance amount plus this fee as a series of small daily payments taken directly off the top of your credit card sales transactions.

Cash advance providers review your sales history and determine a “safe retrieval rate,” or the percentage of daily sales they can withhold from credit card transactions to go towards repayment of the advance. A payment is transferred each day from your merchant account to the provider. The daily retrieval rate is usually anywhere between 1-25% of daily sales, depending on the advance amount. Advances are repaid quickly, usually within a few months.

Qualifying for a cash advance is easier than qualifying for a bank loan. Here are some things providers will usually look for:

Organized business records that reflect sales volume accurately
A certain amount in credit card sales per month (this can vary by provider)
No existing agreements with other advance providers
Established business history, such as long-term property or equipment leases.

If you qualify for an advance, you’ll need to negotiate terms such as provider fee, retrieval rate, and repayment schedule with the provider. Once you’ve agreed on these terms, you’ll sign an agreement and your advance will be transferred. The provider will make sure your current merchant account allows third party access and additional transactions. If it doesn’t, you may need to switch to a different account provider.

Make sure the vendor you choose doesn’t charge additional fees, such as for administration or account set up. These fees are not customary in cash advance transactions. Vendors shouldn’t pressure you to take a larger advance than you need, or approve you for an advance amount when your daily revenue will clearly not support repayment. Some vendors offer incentives, such as better repayment terms, if you switch to their company for services like credit card processing. This can be a great way to get a deal on equipment or negotiate better terms, but no vendor should ever require that you switch to their company for services as a condition of granting an advance.

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