Unsecured Business Loans and Merchant Cash Advances

As a small business owner I often need fast capital infusions and come across factoring, merchant cash advances and unsecured business loans. Each one has their pluses and minuses. Below I hope to explain each process clearly so other small business owners can take advantage of one of these fast funding mechanisms for small business funding.


There are four main types of short term non-bank financing of accounts receivable, or factoring. Maturity factoring the factor maintains the seller’s sales ledger, controls credit, follows up on all payments and pays the amount (after deducting their commission) of each invoice. Finance factoring the factor advances funds to the merchant and the security is the future receivables. Discount factoring the factor advances a percentage between 70 and 85% of the value of the receivables on a non-recourse basis and assumes full responsibility of collecting the debts. Undisclosed factoring is like the above but is not disclosed as such to any third parties. Factoring as you can see can be rather intrusive as your clients will be fully aware that you are borrowing money.

Merchant cash advances

Merchant cash advances are less intrusive and revolve around daily credit card sales. Small business owners who need cash fast have been using this method to receive cash infusions for about 15 years. Money is offered in a lump sum in exchange for a share of future sales. Retailers, restaurants and service companies are targeted most. The interest rates are higher and business owners should treat it as a loan. These are not exactly loans though. It is a purchase of future sales and therefore is not bound by laws that regulate lenders and limit interest. Providers do not collect regular fixed payments rather they take a percentage of the merchant’s daily credit card sales until they recover the advance and their premium, usually in less than 12 months. There is no due date and no fixed payment. Payments called “hold backs” are taken from the daily credit card sales prior to having those funds deposited to the merchant. So if your sales were $100 for the day the merchant would hold back $15 and you would get $85.

Unsecured business loans

Unsecured business loans work just like merchant cash advances except they have nothing to do with credit card sales. Same method but the merchant account is debited directly from their checking account a hold back percentage of daily revenue. Often the merchant grants “read only” access into the merchant’s bank account so they can see what they made and debit accordingly. Unsecured business loans require no collateral as the name suggests.

For merchant cash advances and unsecured business loans use our secure online application today.