What is a Merchant Account Cash Advance?

Did you know that many merchant account companies offer their merchants the option to have a cash advance? It works kind of like a loan (but is not a loan). You apply with the company and then set up a repayment schedule. The difference is that the merchant services company just withholds a predetermined amount of your credit card payment transactions in increments (usually daily or monthly) from your future sales until the advance is paid off. This is a nice perk, since you don't even need to handle the repayment yourself; it's all done automatically.

The process is simple, but most merchant account companies will require that your business "qualify" to receive an advance. Policies may vary but some general guidelines look like this:

1. Length of time in business: Most of the time you will need to be an established company with at least a year of business behind you. Some companies may require only 6 or 9 months.

2. Sales: You will need to have a decent history of monthly sales numbers. If you're not making any money at all, you're likely not going to be able to get an advance.

3. Type of business: Some companies only offer advances to certain business profiles, such as retail or restaurant. If your business is really non-traditional or "out there" you may have a harder time securing an advance.

A lot of merchants ask me why they have to show a good track record of monthly sales as part of the process. Their stance is that they wouldn't necessarily need an advance if sales are good. I tell them that advances are best used when businesses want to expand but don't currently have the capital to do so. Advances shouldn't be used to keep a sinking business afloat. Since it's not a loan, you have to actually have payment transactions since this is how your merchant company gets paid back (by withholding a portion of credit card sales).