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Funding Your Transactions with Cash Advance

Every company needs to complete transactions to do business. LuxeMark Capital, LLC helps make that happen with merchant cash advance and credit card loans. Our New York-based firm is here to help you power your sales and achieve success.

Merchant Cash Advance

Advances may be extended to businesses in exchange for a percentage of the businesses daily credit card income, directly from the processor that clears and settles the credit card payment. Not a loan, this is the sale of a portion of future credit and/or debit card sales. A company's remittances are drawn from customers' debit and credit-card purchases on a daily basis until the obligation has been met. Most providers form partnerships with payment processors and then take a fixed or variable percentage of a merchant's future credit card sales.

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This structure has some advantages over the structure of a conventional loan. Most importantly, payments to the merchant cash advance company fluctuate directly with the merchant's sales volumes, giving the merchant greater flexibility with which to manage their cash flow, particularly during a slow season. Advances are processed more quickly than typical loans, giving borrowers quicker access to capital. Also, because MCA providers like typically give more weight to the underlying performance of a business than the owner's personal credit scores, merchant cash advances offer an alternative to businesses who may not qualify for a conventional loan. An example transaction is as follows:

A business sells $25,000 of a portion of its future credit card sales for an immediate $20,000 lump sum payment from a finance company. The finance company then collects its portion (generally 10-25%) from every credit card and/or debit card sale until the entire $25,000 is collected. 

Rather than using traditional APR to calculate the rate of a merchant cash advance, the funding provider gives the business a factor rate on the loan. To calculate the payback rate, the merchant cash advance company multiplies the advance amount paid to the business by the factor rate.

Types of Cash Advance Available

Split Withholding
This occurs when the credit card processing company automatically splits the credit card sales between the business and the finance company per the agreed portion (generally 10% to 22%). It is generally the most common and preferred method of collecting funds for both the clients and finance companies since it is seamless.

Lock Box or Trust Bank Withholding
All of the business's credit card sales are deposited into a bank account controlled by the finance company. Then the agreed-upon portion is forwarded onto the business via ACH, EFT, or wire. This is the least-preferred method since it results in a one-day delay in the business receiving the proceeds of their credit card sales.

ACH Withholding
When structured as a sale, the finance company receives the credit card processing information and deducts its portion directly from the business's checking account via ACH. When structured as a loan, the finance company debits a fixed amount daily regardless of business sales.