From an accounting perspective, there is a lot of confusion as to how your merchant cash advance ends up on the books. It’s tempting to book it as a balance sheet item, but you have to remember that the merchant cash advance is not a loan. The next obvious step would be to try to break out each payment that you made into principal and interest. The problem with this method is that when you take a merchant cash advance, you’re not actually borrowing money, and therefore you aren’t taking on any debt. So how does this work, where does your merchant cash advance end up on your financials?

What is a Merchant Cash Advance?

It is important to remember that a merchant cash advance is actually a purchase and sale agreement. If you read through any merchant cash advance contract, most of the time it is very clear that you are selling a fixed amount of your future revenue from credit card processing transactions. With this in mind, the logical thing to do from an accounting standpoint would be to book the entire purchase price (the advance amount) as income once you receive the deposit into your bank account. Since from that point forward, you should be repaying the advance through fixed percentage of your credit card processing sales. What should happen over time, therefore, is that the income you are able to show from your credit card processing activity should be reduced by the amount of receivables you have sold (the total amount you repay). In that way you’d actually be reducing your taxable income, which may be another benefit of the program that many people are not aware of.

Of course, it is wise to consult with your accountant before making any decisions of this sort, but the point of this post is that your merchant cash advance should probably not be booked as debt, with interest payments as expenses to be found on your profit and loss statement.

How Much Could you Save?

If you have an existing merchant cash advance and would like a quote from one of our agents, it’s easy to fill out a “Get Started” form at the top of this page, or you can just give us a call to see how much you would qualify for and how much money you could save with us.

Credit card factoring is a relatively new financial tool available to small to midsize businesses.  Sometimes referred to as a business cash advance or a merchant loan, it’s slightly different from traditional factoring.  In a traditional factoring arrangement, a business has provided a product or service to a customer, who will pay for that product or service within a certain period of time, usually 30, 60 or 90 days.  Once the product or service has been provided to the satisfaction of the customer, the business may decide that it doesn’t want to wait 90 days to get paid, so they enlist the services of a third party called a “factor”.  Let’s say the invoice amount is $10,000.  The factor may offer to buy the right to collect that $10,000 by paying $9,500 to the business upfront.  The business is willing to pay $500 to have access to his $10,000 right away, and the factor is willing to wait 90 days to get paid because they stand to earn $500 on their $9,500 investment.

Credit card factoring works similarly.  The main difference is that instead of buying the right to receive payments for a receivable that already exists, the merchant loan provider is buying the right to collect payments receivables that don’t exist yet, or future receivables (specifically, future revenues from credit card processing transactions).  There is significantly more risk involved simply because there’s no guarantee that the future receivables being purchased will ever come to fruition.  For that reason, the cost of this type of factoring is significantly higher.  That same $10,000 in receivables may only earn $8,000 for the business.

Because these receivables don’t exist yet, the way that the factor gets paid back is also very different from traditional factoring.  The business instructs its credit card processor to assign a small percentage of every sale to the balance on its contract.  That percentage can range from 5% to 25%, depending on how much future receivables the business is selling.  The percentage is also fixed, so the rate at which the balance gets paid back fluctuates with its credit card revenue.  Let’s say that the percentage agreed upon by the business and the factoring company is 10%.  If the business does $100 in credit card sales, the credit card processor will pay $10 to the factor, and forward the remaining $90 to the business like normal.  Likewise, the business may process $1,000 in sales the next day, in which case the processor will pay $100 to the factor and send $900 to the business.  And if the business doesn’t have any credit card sales the following day, then the factor doesn’t get paid anything.  These merchant loans can take anywhere from just a few months to 18 months to pay back completely, but no matter how long it takes, the amount purchased by the factor doesn’t change.  This type of financing has a fixed cost, so it does not get more expensive over time.  This is why merchant loans are great alternatives to traditional business loans.

The key to finding the best deal on your merchant loan is to let people compete for your business.  There’s a huge advance to working with an account representative at Sure Payment Solutions because we know the industry and have close relationships with the industry’s leading merchant loan providers.  The Sure Payment Solutions staff has helped facilitate over 100 million dollars in business cash advance transactions since 2006.  Give us a call today for a free quote.

When a business is struggling to come up with the cash that it needs for standard operations, the business owner may turn to some alternative means of finance to come up with the money it requires. In many cases, businesses cannot qualify for traditional commercial loans because of negative credit histories or a lack of credit in general. In these situations, using an unsecured cash advance may be an alternative to consider.

How They Work

The basic idea behind an unsecured cash advance is that a merchant cash advance lender gives a business a certain amount of money in the form of a cash advance. In a typical merchant cash advance scenario, the merchant cash advance lender then sets up a credit card terminal in the business. When the business makes a sale and accepts payment from the customer through the credit card terminal, a small percentage of the transaction goes to the merchant cash advance lender. In this way, the cash advance is paid back to the lender over time.

Based on Revenue

With revenue based merchant cash advances, credit card processing is not a requirement. Instead, the advance is made based on the purchase of other receivables, not just credit card processing receivables. The receivables in question come in the form of bank deposits. One of the attractive features of this type of loan is that it is not based on the company’s credit. Instead, the loan is based on the revenue that the company brings in. Most of the time, the company will have to prove that it has a certain amount of credit card receipts every month in order to qualify. If the business has been collecting payments for several years in this manner, the merchant cash advance lender knows that it can feel relatively confident that it will be able to collect on the debt.

Unsecured Advance

This type of cash advance is not secured, which means it is not attached to any kind of collateral. This can be advantageous to the business owner because he doesn’t have to risk any of his own property with the advance. If the bank deposits or transactions do not add up to be enough to pay off the debt and the business goes under, the debt could go unpaid. The merchant cash advance company would then have to file a civil lawsuit in order to get some of the debt back. This puts the lender in a position of risk and lowers the risk for the borrower.

Considerations

The major advantage of this type of advance is that the business owner does not have to make payments to repay the debt. This means that no minimum amount must be paid to the lender each month as would be the case with a traditional loan arrangement. Instead, the debt is paid off over time each time a payment is made with a credit card, or another type of deposit is recorded in the business account. If payment is accepted in cash or via check, the business does not have to give any of that money to the cash advance merchant.

Another advantage of this type of cash advance is that it can be pursued by those with poor credit. If a business does not have any credit built up but can show a positive history of credit card receipts, the money it needs could be within reach through a merchant cash advance.

To start your own business, you need a great idea, solid business plan and money to get your idea off the ground. There are many options that your business has when it comes to getting the money it needs, but merchant services loans might be the best way to get the money needed. Why should a new business consider this type of loan?

Easy To Get

Merchant services loans are a cash advance for businesses that have little to no credit history, or have credit issues in the past. Most applications are going to be approved, which is good when you have to make payroll, or you want to spend more money marketing your product. Spend more time worrying about marketing your company and less time worrying about how your credit could potentially hold you back.

Unsecured Loan

The best part of getting this type of loan is that you do not have to put up any collateral. Whenever a loan is tied to an asset, it can be harder to get out of the loan should anything happen. This is because your creditor can simply seize the asset and sell it off for the cash. When you get a merchant loan, you get the benefit of an unsecured loan without having to have the higher credit score that is usually required to have your loan be unsecured.

No Set Loan Repayments

One of the more flexible features of a merchant loan is that you don’t have any set repayment terms to deal with. You pay the money back as your revenues grow, so you don’t feel pressured to make payments before your company is ready to pay back loans. Taking larger orders, and generating more revenue, can be difficult if your business is lacking the money to do so. If your company is new and growing, this can be a great way to grow your business while being able to focus on your company instead of your finances.

Your business needs time and money to grow into the best company it can be. When you know you have a source of working capital that can fit your needs and allow your company to pay its obligations on time, it will become a stronger company in the long run. Over time, as the company obtains a longer credit history and more positive credit history, it will qualify for more traditional financing. However, a merchant service loan can be a great option until that point is reached.

Over the past 6 – 12 months the small business lending community has seen a significant shift in lending programs to these ACH debit programs.  These programs are set up in a couple of different ways, but the common denominator is that they are all paid back by the lending company debiting payments directly out of the borrowers bank account on a daily basis.  Some companies do this by setting up a fixed daily payment that is agreed upon before the funds are sent out, while others agree to debit a fixed percentage of all deposits made into the bank account (also agreed upon upfront).

Unlike traditional lending programs, these are based heavily on the specific cash flow of the borrower’s business.  Daily payments are a blessing for some business owners and a curse for others.  Many business owners have trouble managing large monthly payments and having the lender debit their bank everyday is more manageable from a planning standpoint.  The payments are smaller and more frequent so it is easier to plan for them to be a part of everyday business, while a once a month payment can come at an inopportune time and late fees can accrue quickly.  The business owner is also generally in charge of making sure the payment is made, not the other way around.

Still, the daily payments are more difficult for other business owners who rely on their everyday cash flow to purchase inventory and manage bills, and a monthly payment is more palatable.  However, the lending community has shifted to this model because it puts the control in their hands, and they are likely to know about a problem more quickly than they would with a once a month payment schedule.  This type of lending has quickly replaced merchant cash advances as the primary business funding alternative to a traditional bank loan product.  It can work for a much broader audience and doesn’t require anything in regards to merchant accounts and merchant processing history.

In fact, many cash advance providers have begun offering a program in line with this need to better serve a wider variety of clients.  It has proven to be a productive program on both ends and many business owners who qualify for traditional loans or merchant cash advances are opting for these daily ach debit programs.  They are more difficult to qualify for than traditional cash advance programs, but many business owners like that it has nothing to do with their credit card processing.  Furthermore it allows those cash advance providers to reach businesses where credit cards are not a primary form of payment, which has opened the doors to increase the lending pool by a great margin.

If you’re a business owner and are interested in getting some money for your business, then inquire about our loan programs, particularly the ach debit based loans so that you too will have a chance to take advantage of the newest loan product available on the market today.