The term "merchant cash advance" may be used to describe purchases of future credit card sales receivables or short-term business loans.
Most providers form partnerships with payment processors and then take a fixed or variable percentage of a merchant's future credit card sales.
Therefore, merchant cash advance transactions are not subject to state usury laws that limit lenders from charging high-interest rates.
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.
[8] Small businesses take out loans and cash advances when they believe that the opportunities offered by expanded financial assets will outweigh the costs.
Disadvantages include: Short repayment terms, anywhere between 4 and 18 months, daily or weekly payments, higher interest compared to traditional banks.