But rather than requiring that borrowers make a fixed payment at a specific interest rate, these companies collect a piece of a merchant’s total credit-card sales each month—via the credit-card processing service—until they recoup the total amount plus a premium. But with big banks in full retreat from lending, more small business owners are seeking help from the likes of AdvanceMe, AmeriMerchant, and hundreds of other companies and independent contractors that offer such advances. Merchant cash advances are defined as the “purchase and sale of future credit-card receivables” rather than an actual loan. For example, a merchant cash advance where the firm charges fees of 33% of the principal during a 7-month repayment period is akin to taking out a loan at an annualized interest rate of more than 50%. read more

Filed in: Cash Advance