Merchant Cash Advance
A Merchant cash advance is a lump sum payment to a business in exchange for an agreed upon percentage of future credit card and/or debit card sales. The business authorizes the merchant cash advance company to take a percentage of its daily credit card income directly from the processor that clears and settles the credit card payments. Once the obligation has been met, usually in a year or less, the automatic deductions stop.
Merchant cash advance companies are most often used by retail businesses that do not qualify for regular bank loans. A merchant cash advance can be expensive compared with interest on a bank loan, ranging from 10% to 100% effective interest.
Merchant cash advances are not loans – 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 usury laws that would limit interest rates.