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Some experts predicted that the merchant cash advance would grow into a 10 billion dollar industry as credit restrictions tightened in the past several years. How do you choose between companies when literally thousands of providers turns up with a quick search for merchant cash advance? Here are a few basics on how merchant advance transaction works. ™

1. You must already be established: Most providers have time requirements on how long you have been in business, how long you've accepted credit cards and how long you've maintained sales volume. This means you must have a business with a credible financial history with a few thousand dollars in accepted credit card sales from customers to get the best rates from vendors.

2. You must be approved first: One of the many reasons business cash advance is favored by so many business owners is because of the fast and easy approval process, but you should be careful though. Do not accept the advance terms or amount just because you got approved on the first try. There are providers who are unscrupulous in order to collect default fees and penalties, approving businesses that they know won't be able to pay off the advance borrowed.

3. How service agreements work: The providers explain all the details once you have been approved. You would repay your advanced amount in daily automatic transfers from your merchant account at a set percentage of your daily sales as deemed "safe" to retrieve, including service fees until the advance amount is paid off. Watch out for:

• Repayments requiring a full balance payoff after a certain period of time

• Fees that sets in when sales volume drops

• Repayment periods that are extended or balloon

Merchant cash advance is not a loan with lending or usury laws, so providers can charge an arm and a leg to businesses with no alternative means of financing.

4. Repayment begins immediately: Just like a traditional loan, you start paying back as soon as you get the cash. Before you sign the service agreement, make sure your current sales volume can support the repayment.

5. Consequences if you default: If you cannot pay back the advance, provisions in the service agreement will govern your potential defaults. If you can't repay the merchant advance provider as expected, make sure you know precisely what will happen. In some cases, companies have been known to place liens on business equipments, levies on you personal bank accounts, or withdrawal money straight from your business checking account, so be careful on giving out such information.

Terms that you can negotiate with providers

• Discounts: Going with a company you know and trust would be a better choice than going with a vendor you hardly know. Many credit card processing service providers also offers merchant cash advance services as well, you might merchant cash advance be able to get better rates from your existing merchant service provider.

• Rates: Just like a traditional loan, the better your financial and sales history are, the better rate you will be able to negotiate with the providers. View vendors' rating at Better Business Bureau to see if any complaints have been filed with the Federal Trade Commission. Get references whenever possible. You can also secure great rates by pledging equipment or bank account access as collateral, but you must be very careful with companies that require you to do this option.

• Repayment schedule: Repayment schedule is flexible just like rates, though be wary of daily/monthly minimum fees to your transactions that can add up.

Terms that are not negotiable with providers

• Application fee: Reputable providers won't ask for it. There is no application fee.

• Existing terms: Unless you are prepared to seriously compromise, once you have signed the contract, you would not be able to negotiate out of terms, schedules, and fees especially. Be prepared to pay if you want to extend the repayment time.

• Merchant requirements: Merchants that accept credit cards are only eligible for merchant cash advance. Companies won't accept you otherwise because they want a guaranteed automated method of repayment.

The type of alternative business financing known as a merchant cash advance has been around for a while now. However, recently it has seen a large uptick in popularity, simply due to the fact that almost all other forms of small business financing have been severely restricted, or have disappeared completely.

These "cash advances" are marketed quite aggressively by some companies, and unsuspecting business owners in a bind may fall victim to a sales pitch. The advantages to these loans are truly attractive, especially to a business that is in need.

Most businesses can get the money within a short time frame, usually less than a month, and the amount of documentation needed is fairly low compared to a conventional SBA-backed loan that may run as long as 180 pages or more. Often cash advance companies can also work with bad business credit that many firms find themselves in as the recession drags on. However, business owners need to be aware of some of the less appealing aspects of some merchant cash advances.

1. Variable Rates - merchant cash advances are not technically loans, and therefore, are not subject to usury laws and other regulations that govern interest rates. As such, merchant cash advance providers may opt to change the interest rate during the repayment period depending on a number of factors. This can make a huge difference in the daily payment a merchant is making.

2. Daily Payment Percentage- Almost all merchant cash advances are collected daily and are designed as short term loans, often 6-12 mos in duration. Collecting the payment daily is the only way to pay the loan back in such a short time frame. However the problem lies in the percentage that a merchant cash advance takes a part of each daily sales gross. Sometimes these "holdback" percentages can range as high as 40%, depending on a number of factors. If a business is already in trouble, this can be a final, crippling blow.

3. Fees- Advances can carry not only huge upfront fees, but also high fees at the time of funding. An example would be a small cash advance of say $5100.00. The actual net amount the business would receive may be around $3800. Fees amounting to over 20% of the loan amount are not unheard of. Additionally, the interest rates on such loans may be as high as 50% and require a merchant to switch credit card processors prior to receiving funds.

In conclusion, there are certainly cases where a merchant cash advance has helped a business in need. The problem lies in that many of these types of advances can easily end up solving a short term financial need in exchange for a bigger, long term business loss. Fortunately, there are new, lower cost alternatives that still offer quick, low doc funding with no upfront fees and rates that are much lower. To find out more, click here.