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) -- The increased use of merchant cash advances by small businesses is an expensive reality of the post-recession credit fallout.

Merchant cash advances are financing transactions increasingly being used by small retailers and restaurants -- generally those that have high credit-card and debit-card volume. Cash-advance companies provide working capital funds in exchange for a portion of future credit card receivables. The lump sum, usually given within a few days, does not require personal guarantees or collateral like bank loans do, but they carry short terms and high rates. Plus, if a business starts to fall behind on payments (which are collected via remittance of sales), you can be sure that the lender will quickly look for its money.

"The smaller the business, the more likely

it's going to have to use these alternative forms of capital -- the smallest hairdresser might need to rely on a cash advance," says

Dun and Bradstreet Credibility

CEO Jeff Stibel. "If you're going to go down the route of a high-interest, short-term loan, do your homework. Find the best terms with the most reputable companies and focus efforts there."

Even in the best of times, it was difficult for a small business to get a

bank loan

, so companies, especially startups, have had to resort to any combination of ways to get financing, including personal savings, credit cards and other types of so-called alternative lending.

According to the latest Biz2Credit Small Business Lending Index, the use of alternative lenders, which includes accounts-receivable financers, merchant cash-advance lenders, Community Development Financial Institutions (CDFI), micro lenders and others, continues to rise. In September, the group approved two-thirds of the applications they reviewed, the highest recorded since Biz2Credit started the index in 2011.

"Alternative lenders offer greater flexibility, quicker approvals, and competitive lending rates than they ever have before. This type of financing is very helpful for small and mid-size businesses that encounter short-term cash-flow issues," Biz2Credit co-founder Rohit Arora said in a statement.

"Restaurants and retailers, in particular, find this type of financing attractive as they look to the fourth quarter to be more profitable than other parts of the year. Many businesses are seeking short-term working capital to prepare for the upcoming holiday season," Arora says.

And companies are seeing dollar signs in the alternative lending space. Even



has started to offer selective loans to some of its merchants.

A few companies are looking to give more transparency to the merchant cash industry and offer another route to get capital to small-business owners.

1. Advance Me

Capital Access Network subsidiary


is one of the biggest cash-advance lenders in the country. According to the company, AdvanceMe has made over 82,000 advances, providing more than 35,000 businesses in all 50 states with over $2 billion in working capital.

Brick-and-mortar as well as e-commerce businesses can use AdvanceMe capital to "renovate, purchase new equipment and supplies, fund advertising, manage unexpected expenses and seasonal downturns and free themselves from second-mortgage liens and personal guarantees associated with loans," the company says.

Merchants are required to submit their last four credit card processing statements and must have a minimum credit card volume of $5,000 per month. The fees on AdvanceMe's fund transactions were not available to



2. American Express Merchant Financing

American Express


launched a

merchant financing program

for its small and medium-sized merchant customers in September 2011. Under the program, businesses in good credit standing with American Express will have access to as much as $750,000 in three to five business days. The money is repaid automatically through settlement charges. American Express charges merchants a fixed rate of 0.5% if they choose a monthly disbursement or 6% if they choose annual disbursement.

Because it is a fixed-fee product, the merchant knows upfront exactly how much will be paid in finance fees in connection with the loan, according to the company.

To qualify, merchants must charge at least $100,000 a year, be affiliated with American Express for at least two years and have no prior account issues, the company says.

An American Express spokeswoman declined to disclose how much merchants have financed through the initiative.

3. Kabbage


provides quick financing for online sellers. In just 18 months, Kabbage has provided more than $40 million in funding to small businesses, according to the company.

Merchants sell some of their anticipated future credit card receivables to Kabbage. They can receive as much as $50,000 per six-month period. They pay between 8% and 18% on the advance if they take the full six months to pay back the amount. The percentage is based on a store's monthly revenue, credit quality and time to payback.

Clients who increase their selling potential, such as adding online stores like Amazon,






, Etsy and Shopify or other payment options can increase their funding. Even the amount of social media interaction between businesses and customers can lift advance limits.

"Many customers take out the funds and pay them back in one month, two months or three months. There are no fees at all to pay back earlier," the company says. "Our customers use Kabbage repeatedly during the year for their working capital needs -- in fact they take Kabbage advances an average of 9.7 times during the year (so almost once per month)."

Would you use a merchant cash advance if you needed quick capital? Tell us why or why not in our comments section below.

-- Written by Laurie Kulikowski in New York.

Follow @LKulikowski

To contact Laurie Kulikowski, send an email to:


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