Setting Up the Advance

• There are a number of merchant cash advance companies that offer this type of service. The cash advance company will set up a credit card machine for the business. The company will then give the business a certain amount of cash, based on how much revenue it regularly brings in. Then each time that a credit card transaction is completed, a percentage of the sale goes to paying back the cash advance. In this way, the entire cash advance is slowly paid back through the proceeds from sales.
  
  

Interest Rates

• One of the drawbacks with this type of cash advance is that the interest rate on the loan is very high. While it is usually not quoted as an annual percentage rate, it works out to as much as 200 percent interest. This is much higher than what a business could get through a traditional lending arrangement. Because of the high interest rates, this type of lending is generally only used by companies that cannot get funding from any other source. When a business is faced with borrowing money at high interest or going out of business, it usually chooses the former.
  
  

Periodic Repayment

• Even though this type of loan comes with very high interest rates, the periodic repayment of it makes it attractive. With this type of advance, the business does not have to make regular monthly payments to pay off the loan as it would with a traditional lender. Instead, the payments are only made when the business makes a sale and processes a credit card transaction. If you make a cash sale, the merchant will not get any of that money. This allows you to pay the loan back only as you are bringing in money.
  
  

Qualifications

• This type of loan is not available for every business. To qualify for a merchant cash advance, your business has to have a strong history of credit card sales. When evaluating your application, the merchant cash advance lender will put more weight on the strength of sales as opposed to the credit profile of the business or the owner. This is good news for businesses that have a poor credit profile because of past financial mistakes.