Merchant Cash Advance - New Ways Of Business Finance
When planning to fund the opening of a new restaurant establishment, whether you do not qualify for a traditional bank loan, or whether you prefer the option of forming a partnership with a merchant service, the option of attaining financing to open the restaurant via a merchant cash advance is one to consider.
When taking out a
merchant cash advance, the merchant lender will offer a lump sum
payment to the business owner opening the restaurant, and in return
will receive an agreed upon percentage of future debit or credit
card sales and transactions which take place in the establishment.
These sums will be taken out of the daily credit and debit card
income that is earned, and the restaurant owner will have the agreed
upon percentage drawn out, and paid directly to the merchant lender.
The option of seeking out merchant cash advance, is one that many restaurant owners will turn to in the event they are turned down for a traditional loan by a regular bank or lender. As the merchant cash advance hold higher interest rates than a traditional bank loan, they might not be the first option for owners, but it at least gives them the ability to start up operations, and open the restaurant, when they would otherwise not have the means to do so, since they were declined for loans. Unlike a traditional loan, a merchant cash advance is not a loan at all, but is instead a portion of future income earned on credit and debit card sales, which will be paid directly to the merchant upon sale (on a daily basis), until the entire loan amount, plus agreed upon interest, has been paid off entirely by the restaurant owner.
In certain instances, the merchant and restaurant owner will agree on one of three repayment methods for the amount offered to the business owner. One is the split withholding method where the credit card processing company will automatically split credit card sales between the owner and the merchant. This option is the most common as the merchant will collect funds on a daily basis, and will be repaid in the shortest period of time.
A second option is a lock box or trust account
where all credit card sales are placed into a bank account
controlled by the finance company. The agreed upon interest will be
paid out from that account on the credit and debit card sales. The
final option is the ACH withholding where the merchant receives
credit card processing information, and in turn deducts their
portion from the restaurant owner's bank account using the ACH
The option to take out a merchant cash advance might not be the first option business owners seek, but it is a way to attain funds, where they would otherwise not be able to open their business. Additionally, with the advance, they can open up with less capital, and can start running the business right away, rather than having to wait for other financing options.