Unlike a traditional small business loan, a merchant cash advance is NOT a loan. The basis for a merchant cash advance is the future receivables from a business owner who accepts credit cards or has other payment receivables that flow into the merchant’s account or accounts. Typically a small business can apply for and have a merchant cash advance set up relatively quickly Penn Commercial Capital will assist you in setting up this account. The evaluation and approval are based on risk factors and the weight applied to credit are different than what a traditional banker might look at.
The rates on a merchant cash advance are higher than a traditional loan. Although a traditional bank may not approve a commercial loan due to the factors listed above a merchant cash provider will look at your receivables and future earnings and payments via credit card payments and other receivables and the timeliness of payments being made. If you are looking at setting up a merchant cash advance, you need to be aware of and understand terms about the potential return on investment. This account is being set up for you so you can acquire capital immediately.
Penn Commercial Capital will, after approval, prepare the agreement regarding the advance amount, payback amount, and holdback percentage. A hold-back percentage is an amount that is withheld to pay back the advance. Until the advance is paid in full, the hold-back amount will continue to be drawn out of your account. This eliminates the need to collateralize the loan a la a traditional commercial loan.
You must understand the difference between the holdback amount and the repayment for the entire advance. By way of example, the hold-back amount could be 15% of the receivables and a repayment amount of 30%. What follows is an example of how the repayment schedule is set. If a merchant is advanced (again, not lent) $10,000 and agrees to pay back $13,000, the payback is 1.3% of the advance or 30% of the advance amount. What this means is that 15% of the credit card transactions are held back until the full $13,000 is paid back. Hypothetically, if your receivables are $14,500, then the payback is $2,160 withheld each month and the advance would be paid back in 6 months.
To determine whether or not a merchant cash advance is a wise business choice, you must consider the amount of cash flow you have into your merchant account each day and whether or not the advance can be justified to maintain your daily business obligations and operations. If your business has a weak credit profile, then this option might be best for you.
The documentation you need for Penn Commercial Capital is as follows:
- You need to provide your social security number, business tax id, and other information regarding the business.
- You need to provide several months of credit card or payments processing data as well as bank statements.
- Because your current payment processing service may not meet the needs of the merchant cash advance provider, you may need to switch to a new credit card processor so the provider can monitor that account and make the withdraws as needed.
- Because a merchant cash advance can be set up very quickly and the funds deposited into your account just as quickly, the schedule of payments could begin the day after you receive approval and the funds are transferred. This repayment will begin automatically.
Penn Commercial Capital will ensure that meets all the legal requirements needed and the process will be done at their office in Cherry Hill NJ. Many businesses are feeling the crunch of the pandemic, the loss of revenue, the need for immediate capital so payroll can be met, and improvements to the business made as well as keeping their businesses solvent. Many business owners are looking at ways, with an uptick in interest rates in the offing, to remain open and running. I have posted in my previous blog that there are many ways a merchant cash advance through Penn Commercial Capital can benefit your business and if the program is used wisely, the impact of rising inflation and interest rates won’t be as keenly felt. Make the call!