A merchant cash advance [1] is a way for small business owners to get funds for their businesses in an emergency, or any time they need cash quickly.
The advances are made in a matter of days, and very little paperwork is required. Speedy funding and ease of application make a merchant cash advance an attractive alternative to a small business loan, which may take many weeks to be funded, if the loan is approved. An attractive appeal of merchant cash advances is that they are not reported to the credit agencies, nor do they affect your FICOTM score. Even business owners with poor credit are usually approved. By contrast, each time you apply for a traditional loan, the credit report [2]ing agencies are notified. Just the act of applying will lower your score. More debt [3] means a lower credit score—and less access to funds.
Merchant cash advances are based on a percentage of your business’ future monthly credit card transactions. Repayment is made each month, with a percentage being recovered directly from the business’ income. When sales are down, the repayment is proportionately less; if sales are up, the monthly repayment will be higher. This flexibility in repayment is a popular aspect of the merchant’s cash advance. The amount that can be advanced depends on the business’ gross income, but could be as high as $500,000.
A personal cash advance, on the other hand, is usually made for a small amount, typically $1,500 or less. The amount you will be allowed to borrow is based on your income. Also known as "payday loan [4]s", personal cash advances are usually made to cover an unexpected expense or an emergency of some kind. The repayment period is two weeks or less—by the next pay-day, as the name implies—along with a fee. They are similar to merchant cash advances in that personal cash advances require no credit check and no collateral whatsoever on the borrower’s part. The only stipulations are that the applicant must be over 18 years of age, a U.S. citizen, earning $1,000 per month or more, and have a checking account.
Merchant cash advances and personal cash advances may cost significantly more than loans for similar amounts. And they are presently largely unregulated. Nevertheless, when you need funds urgently, a merchant cash advance may be the smartest choice.