merchant cash advance was originally structured as a lump-sum payment to a credit card company and / or debit card sales. [1] The term is now commonly used to describe a variety of small business financing options by a small payment terms (generally under 24 months) and small regular payments (typically paid each business day). Terms associated with traditional bank loans. The term “merchant cash advance” may be used to describe purchases of future credit cards receivables or short-term business loans. [2]


Merchant Cash Advance for the Credit Union of the United States of America. A company’s remittances are drawn from customers’ debit and credit-card purchases on a daily basis until the obligation has been met. Most providers form partnerships with payment processors And Then take a fixed or variable percentage of a merchant’s future credit card sales. [3]

These merchant cash advances are not loans-rather, they are a sale of a portion of future credit and / or debit card sales. Therefore, merchant cash advance companies claim That They Are not bound by state usury laws limit That Lenders from charging high-interest rates . [4] This technicality allows them to operate in a largely unregulated market and charge much higher interest rates than banks. [5] On June 10, 2016, a New York Supreme Court judge presiding over a published merchant cash advance case ruled that “if the transaction is not a loan, there can be no usury, “To require unwarranted speculation.” [6]

This structure has some advantages over the structure of a conventional loan. Most importantly, payments to the merchant cash advance company fluctuate directly with the merchant’s sales volumes, giving the merchant greater flexibility with which to manage their cash flow, especially during a slow season. Advances are quick to access to capital. Also, because MCA providers like typically give more weight to the underlying performance of a personal credit score , merchant cash advances offer an alternative to businesses which may not qualify for a conventional loan. An example is: A business sells $ 25,000 of a portion of its future credit card sales for an immediate $ 20,000 lump sum payment from a finance company. The finance company collects Then icts portion (Generally 15-35%) from every credit card and / or debit card dirty up to $ 25,000 is the Entire file Managed. [7]

Usage and Repayment Methods

Merchant cash advances are mostly used by retail businesses that do not qualify for regular bank loans and more expensive than bank loans. [8] Competition and innovation. [9]

There are three different repayment methods: citation needed ]

  • Split withholding: When the credit card processing company has split the credit card between the 10% to 22%. This is the most common method of collecting funds for both clients and finance companies since it is seamless.
  • Lock box or bank account withholding: All of the business’s credit cards are deposited in a bank account and controlled by the finance company and then transferred to the business via ACH, EFT or wire. This is the least preferred method of payment.
  • ACH withholding: When it comes to the purchase of a credit card, the credit card processing and deduct its portion directly from the ACH business. When it comes to financing a company, it is a good idea.

Industry size

As of 2013, the industry was estimated to be funding at least $ 3 billion a year to small businesses. [10] DailyFunder is a website that tracks the merchant cash advance industry. [11]

Trade Associations

While not exclusively to merchant cash advances, the Small Business Finance Association and Commercial Finance Coalition are the 501 (c) (6) non-profit trade associations. [12] [13]

Licensing and Certifications

• California: When to finance a loan broker licensed under the California Finance Lenders Act. [14]

• The industry training and certification course allows salespeople to receive a merchant cash advance basics certificate valid for two years. A product of industry self-regulatory efforts, a certificate is not legally required to sell merchant cash advances. [15]


  1. Jump up^ Tozzi, John (9 Jan 2009). “How Merchant Cash Advances Work” . BusinessWeek . Retrieved 11 July 2011 .
  2. Jump up^ Murray, Sean (Mar 5, 2012). “Merchant Cash Advance Redefined” . Retrieved 6 Feb 2012 .
  3. Jump up^ Loten, Angus (Aug 18, 2011). “The Lure of Cash Advances” . Wall Street Journal . Retrieved 18 Aug 2011 .
  4. Jump up^ Farrell, Maureen (31 Jan 2008). “Look Who’s Making Coin Off The Credit Crisis” . . Retrieved 11 July 2011 .
  5. Jump up^ Elizabeth S. Bennett and Nitasha Tiku. “Thanks, But No Thanks” . Inc. Retrieved 4 December 2012 .
  6. Jump up^ Murray, Sean (June 11, 2016). ” ” Merchant Cash Advance Definitely NOT a Loan, New York Judge Rules . ” Retrieved 7 December 2016 .
  7. Jump up^ Goodman, Michelle (11 Jun 2012). “Case Study: How A Merchant Cash Advance Worked in a Pinch” . . Retrieved 21 May2013 .
  8. Jump up^ John Tozzi (9 January 2009). “How Merchant Cash Advances Work” . Bloomberg . Retrieved 8 November 2016 .
  9. Jump up^ Sean Murray (19 Sep 2012). “The End of an Era” . Retrieved 6 Feb2012 .
  10. Jump up^ Sean Murray. “You Can not Ask How Big It Is Without Defining What It Is” . DailyFunder . Retrieved 28 Jan 2014 .
  11. Jump up^ John Tucker (January 10, 2016). “Merchant Cash Advance Predictions for 2016” . OfBanked .
  12. Jump up^ “Small Business Finance Association” . Retrieved 7 December 2016 .
  13. Jump up^ “Commercial Finance Coalition” . Retrieved 7 December 2016 .
  14. Jump up^ “California Finance Lenders Law” . California Department of Business Oversight . Retrieved 7 December 2016 .
  15. Jump up^ “Merchant Cash Advance Basics” . CounselorLibrary . Retrieved 7 December 2016 .