Start-up financing question

[TweetGirl]

Hi-

Not sure if this is the right area to post this question (about start-up financing) but here goes.

Has anyone heard of merchant credit card cash advance financing? I am starting up a new organization that requires outside funding. While in the process of researching finance options (i.e. SBA loans, venture capital, angel investment, etc.) I came across a company offering merchant credit card cash advance financing. Upon running a Google search of this term, several more companies appeared. It seems too good to be true.

From what I gather, here's how it works:

Receive approval for high amount of capital (think 100s of thousands of dollars, $200k for example). By your company accepting credit and debit cards, your business can receive funding based on its credit card sales from customers. Once sales start coming in, repayment begins, which is generally 10%-20% of overall credit card sales. This continues until the loan is paid back.
The programs I have seen are for unsecured financing with repayment only when credit card/debit card sales occur (since payback is a percentage of credit card/debit card sales). The companies I have seen seem to promise fast approval (within 48 hours) and transfer of money within 5-10 days.

It seems too good to be true so I am very skeptical. Still in the process of researching this but I wanted to find out if anyone has pursued this type of financing? Successes? Failures? Is this legitimate?

I want to be as knowledgeable as possible when pursuing outside financing so any information is greatly appreciated. Thanks.

[MJGlover]

It's definitely legitimate. It's becoming more and more popular as a funding solution for small business. In fact, a contact of mine at Chase told me they're looking to offer the same kind of service in the near future.

The only "bad" part about getting a merchant account is, they require months worth of bank statements, previous invoices, ads, product descriptions, and other details about whatever it is you're claiming to sell. Lets not forget some providers are very picky about the type of products and services you offer.

Not that it can't be done, but it makes the approval process harder to get a merchant account when you're a start-up!

[TweetGirl]

Thanks for your reply. I did more research and I also find that this is legitimate financing however, the hoops you may have to jump through to get financing may be a challenge (i.e. supplying financials, proof of sales, inflexibility of staying with one merchant account processor, etc.). Additionally, all merchant cash advance companies I reviewed don't work with start-ups. A big qualifier of this type of financing is that the company must be an existing business that can prove credit card sales. Thank you for your feedback.