Merchant Cash Advance Glossary Of Terms

Posted in Trust Business Loans News & Information on September 14, 2011

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Merchant Cash Advance:

A lender purchases a specific amount of future credit card sales from a merchant at a discount.  These future sales get paid to the lender daily as a percentage of credit card batches.

(A “Merchant Cash Advance”, or a “Business Cash Advance”, is distinct from a “Payday Cash Advance” or a “Payday Loan”, where job holders sell their future work checks at a discount to a lender.)

Split Funding / Holdback:

The concept of taking a merchant batch of credit card sales and apportioning one percentage to the lender and the remaining percentage to the merchant.

Split Percentage / Holdback Amount:

The percentage of daily merchant credit card sales that gets paid to the lender.

Credit Card Processor:

The merchant services company that provides credit card processing equipment and services for the merchant.  When the merchant batches out their credit card sales each day, the processor is responsible for funding those sales to the merchant’s bank account less fees.

Credit Card Batch:

A merchant can process credit card sales at any time.  However, they won’t get paid by the processor until they batch out, electronically, their sales to the processor.  This is done through the credit card processing machine located at each business location.  It’s suggested that a merchant “batch out” at the end of each day.

The “Funded” Amount:

The amount of funds the lender will pay a merchant in return for portions of future credit card sales.

The “Payback” Amount:

The amount of future credit card sales due back to the lender once a merchant is funded.

Lockbox Account:

A third party to provide split funding services for both the lender and the merchant when the merchant’s credit card processor doesn’t have the capability.

Pre-Approval:

The amount of funding a lender is offering before completing their underwriting.

Underwriting:

The thorough process by which a lender evaluates the credit-worthiness of a merchant and then makes a solid offer, producing a contract.

Closing Costs:

Some brokers charge closing costs or “closing fees” once a merchant cash advance gets funded.  This isn’t required by lenders and is charged purely for profit.  Trust Business Loans doesn’t support these practices.

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