We often get calls at American Finance Solutions asking about how a Merchant Cash Advance works. Most of our clients call in looking for traditional financing that their current bank or finance partner has turned them down for. Many clients have been cut off on their traditional lines of credits, even though they have never missed a payment and have been good clients of the finance institution for years.

After explaining that an merchant cash advance is not a loan (but actually a sales contract) we get asked what is the rate? Through a factoring contract American Finance Solutions is purchasing future revenue at a discount (for example we might purchase $48,000 of future receivables for $40,000 today resulting in an $8,000 discount). Most merchant cash providers will set the credit card retrieval rate to collect the $48,000 over six or seven months. Doing the math you quickly see that paying $8,000 for access to $40,000 of capital is expensive and approximately triple the rate when compared to traditional bank financing.

The next question always is "Why so much?" Answer: A merchant cash advance provides quick, low-doc, uncollateralized business financing when other financing institutions will not. Unfortunately high-risk financing carries much high default ratios than typical bank financing and for the merchant cash advance provider to stay in business they must make up for these losses in their margins.

Most business owners love the thought of quickly accessing $10,000 to $100,000 of cash to grow their business. Before entering into a merchant cash advance contract the client needs to answer two important questions:

1. I can make more profit in the long run by utilizing the funds successfully to justify the cost of the funds?
2. Can my business’ cash flow afford the withholding percentage?

If either questions results in a “No” answer then the one needs to seriously consider the viability of an merchant cash advance for their financing needs. Reputable merchant cash advance providers are not in business to just hand out cash and make their premium. They are here as an alternative-financing partner to help business owners grow, deal with a short-term situation or opportunity while not putting a financial hardship on the business.

American Finance Solutions offers merchant cash advances in all 50 states and is a licensed lender. To date we have financed over $100 million to small- and medium-sized businesses across the US.