Every entrepreneur knows that it takes money to earn money. Ask any business-minded person and they will tell you that it can be frustrating to find additional business funding especially when you have an excellent business idea but still turned down by banks or other lenders. Most banks typically require a number of requirements to secure a loan and you have to convince your loan officer that your business idea will work.

The good news is that there are alternative sources of financing for small to medium-sized businesses other than banks and other mainstream lenders. The most popular is called a merchant cash advance (MCA), also known as credit card factoring.

Why is it popular? Unlike banks, MCA providers don’t require any collateral,no fixed term payment , no late payments, no penalties or surcharges and approval time is quick. The borrower has the flexibility of spending the money in any business-related expense, be it refinancing the existing business, remodeling an office, upgrading tools and equipments, as an addition to the working capital, marketing or payroll.

So how does a merchant cash advance work?

The provider purchases credit card receivables from the merchant borrower. That is, the provider advances money on the borrower’s future credit card receipts. In essence, merchant cash advance is not a loan to the client receiving the money. Rather than borrowing money, the merchant is selling an interest in his or her future credit card receivables. As long as the merchant’s credit card receipts does not fall below 50 transactions a month or has a minimum of $4,000 in credit card sales, has owned the business for the past 6 months and must not have any open bankruptcies or foreclosures, then the merchant is eligible for a cash advance.

A small percentage of the daily credit card receipt is then forwarded to the provider to repay the money. There is no pressure on the part of the business owner, no due date and no fixed payment amount which means when sales are down, the payment amount is also low and when sales are up, the payment amount also goes up as long as the merchant can afford it.