Merchant Cash Advance

We collaborate with small business owners to facilitate merchant cash advance loans from MCA providers.

Intro to Merchant Cash Advances

If you’re a small business owner needing immediate capital, a Merchant Cash Advance (MCA) could be the ideal solution. Also referred to as a Business Cash Advance or MCA Loan, this financing option offers accessibility and flexible payment terms. Unlike traditional loans, MCAs typically don’t necessitate an excellent credit score or extensive financial documentation for eligibility.

Payments for a merchant cash advance are calculated based on a percentage of daily credit card sales. This variable structure means you’ll pay more during busy periods and less during slower ones, which can benefit businesses with fluctuating revenue streams. This flexibility is particularly advantageous for small businesses that may find the rigid repayment schedules of conventional loans challenging.

In this guide, we’ll cover key questions such as:

What Is a Merchant Cash Advance?

A Merchant Cash Advance (MCA), also known as a “Business Cash Advance,” “Credit Card Factoring,” or “Credit Card Processing Loan,” provides business owners with a lump sum of capital. Repayment is based on a fixed percentage of future daily credit card sales, referred to as the Holdback Rate. These payments are automatically deducted each day, adjusting based on the volume of debit and credit card transactions.

Qualifying for a merchant cash advance is generally simpler compared to other small business loan options. It’s suitable for small business owners with minimal collateral, limited business credit history, or lower FICO credit scores. The amount of financing available is determined by the projected future credit card receivables or sales processed through credit card payments.

In this financing arrangement, business owners receive an upfront sum of capital at a discounted rate in exchange for a portion of their future credit card sales. This allows immediate access to funds without the delays associated with waiting for full credit card settlement periods.

MAX FUNDING AMOUNT

$5K - $1M

FACTOR RATES

Starting at 1-6% p/mo

TERM

3-24 Months

SPEED

1-2 Business days

How Does a Merchant Cash Advance Work?

Here’s how a merchant cash advance differs from traditional bank loans: The amount you can borrow and the terms of your merchant cash advance primarily hinge on your historical and projected monthly credit card sales volume. This metric is crucial for qualifying for a merchant cash advance, as robust sales from debit and credit cards can often offset any challenges posed by a poor credit history.

Your business credit profile also influences other aspects of the merchant cash advance, such as the “holdback rate” or “holdback percentage.” This fixed percentage of daily or weekly credit card sales is deducted to repay the advance, typically ranging from 8% to 15% of daily sales. Consequently, your repayment amount fluctuates in tandem with your business revenue.

Instead of an interest rate, merchant cash advances use a Factor Rate to determine the total repayment amount to the provider. Factor rates usually range from 1.09 to 1.5 and are applied to the advance amount to calculate the final repayment sum.

Example of a Merchant Cash Advance:

Let’s assume you borrow $50,000 with a factor rate of 1.4. This means the total repayment amount will be $70,000 ($50,000 x 1.4).

The provider deducts 10% of your daily debit and credit card transactions each time you batch out.

In the first month, if your business processes $100,000 in credit card transactions, with a 10% holdback rate, you would pay $10,000 (10% of $100,000) towards the advance for that month. This amount is typically collected daily as a fixed percentage of your card sales.

If sales decrease in the second month to $70,000 in credit card receipts, your daily payment would adjust accordingly. At the same 10% holdback rate, your daily payment would be $7,000 (10% of $70,000) for that month.

This flexible repayment structure aligns with your business’s revenue, ensuring that payments adjust proportionally to your cash flow.

Merchant Cash Advance on Future Credit Card Sales – Research, Facts & Reports

Merchant cash advances are designed for rapid repayment, accommodating fluctuations in sales volumes. Despite their higher associated costs, these products boasted an impressive approval rate of nearly 90% in 2023, up from 84% in 2020. The global market for merchant cash advances is projected to expand to $26.3 billion by 2029, driven by sectors such as restaurants and retailers that often face cash flow challenges—a significant factor contributing to small business failures.

What Are The Advantages of a Merchant Cash Advance?

Merchant cash advances are renowned for their accessibility, making them a viable option for small businesses facing challenges such as subpar credit, payment history issues, cash flow fluctuations, or less than a year in business. Approval can often be obtained swiftly, sometimes within less than 24 hours, due to relaxed qualification requirements.

The repayment structure of merchant cash advances offers distinct advantages for businesses experiencing seasonal revenue variations or occasional gaps. Instead of fixed monthly payments typical of traditional loans, payments are based on a percentage of future sales. During slower months, businesses pay smaller amounts, proportionate to their sales, which alleviates financial strain. Conversely, during peak seasons, payments adjust accordingly, allowing businesses to capitalize on increased cash flow without the burden of rigid repayment schedules.

This flexibility is especially beneficial for seasonal businesses, enabling them to use funds strategically during slower periods and manage larger payments during busier seasons. For instance, borrowing $100,000 with a factor rate of 1.3 results in a total repayment of $130,000. Depending on the repayment term—whether six months or twelve months—the effective Annual Percentage Rate (APR) can vary significantly, typically ranging between approximately 30% to 60%.

This variability in payment structure makes merchant cash advances an attractive choice for businesses aiming to navigate cash flow fluctuations effectively while maintaining operational stability throughout different business cycles.

What Are The Disadvantages of a Merchant Cash Advance?

Looser eligibility requirements often accompany merchant cash advances, but they also entail certain trade-offs. Borrowers with lower FICO scores and cash flow challenges statistically have a lower likelihood of repaying merchant cash advances on time. Consequently, merchant cash advances are considered among the more expensive small business financing options available. The higher payment amounts are structured to offset the heightened risk assumed by the providers of these advances.

These substantial and frequent payments can strain your operating capital, even during periods of robust sales.

Furthermore, unlike traditional financing options such as business lines of credit or term loans, there is no benefit to paying off a merchant cash advance early. The repayment amount remains unchanged regardless of when you settle the advance. In contrast, early repayment of loans with amortization schedules typically reduces the total interest paid over time.

PROS
CONS

Merchant Cash Advance Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Merchant Cash Advance?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$120K+

CREDIT SCORE

550+

TIME IN BUSINESS

4 months+

How To Apply For a Merchant Cash Advance:

As your funding provider, you can access up to $1 million with terms extending up to 24 months. Here’s how to begin the application process:

Step 1: Assess Your Needs

Before proceeding, ensure that this funding option aligns with your specific needs and circumstances. Evaluate whether the capital will be effectively used for your intended purposes and how the repayment structure will impact your operational capital. It’s crucial to determine the exact amount of funding required to meet your objectives.

Step 2: Gather Required Documents

Prepare the following documents for your application:

Step 3: Complete the Application

To initiate the application process, you have two options: you can either contact us directly or complete our streamlined online application form. Provide the necessary information, including the amount of funding you are seeking.

Step 4: Consult with a Representative

Once you submit your application, one of our representatives will promptly contact you. They will provide detailed information about the repayment structure, interest rates, and available terms specific to your options. This ensures transparency regarding any fees or conditions throughout the repayment period.

Step 5: Receive Approval

The approval process typically takes a few business days. Upon approval, the funds will be deposited into your designated checking account within 1-2 business days.

Setting Up Your Merchant Cash Advance – What’s Next?

A small business loan not only provides financial support but also serves as an opportunity to strengthen your credit profile.

Regardless of the specific type of small business loan you secure, it’s crucial to make timely and complete payments on all obligations. Keeping balances within recommended limits for revolving credit products is essential. For accounts receivable financing, ensuring prompt customer payments enables the financing company to manage collections efficiently.

Consistently making payments on time will have a positive impact on your credit score, setting the stage for favorable rates and terms on future small business loans.

What If I’m Declined For a Merchant Cash Advance?

If your application for a merchant cash advance is not approved, it may be due to challenges such as insufficient operating capital to manage the daily repayment structure or issues with your merchant account. Responsible merchant cash advance providers, like us, would recommend exploring alternative products that place less strain on your operating capital and offer more flexible repayment terms. These alternatives could include accounts receivable factoring, equipment loans, or working capital loans.

For business owners facing challenges in taking on additional debt, we might suggest considering alternative financing tools or loan options. These could involve business credit cards or personal loans, which generally have more lenient qualification criteria compared to traditional small business loans and can help in building your credit profile.

If your decline was linked to poor FICO scores, consider utilizing credit repair services to enhance both your personal and business credit ratings. These services identify and resolve issues impacting your credit scores, such as settling outstanding debts or reducing personal liabilities. Improving your creditworthiness can increase the likelihood of future approvals for merchant cash advances and potentially lead to lower interest rates on small business loans.

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