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A merchant cash advance is a type of funding that’s typically used by businesses to cover short-term expenses or to take advantage of opportunities that require immediate capital.
Unlike a traditional loan, a merchant cash advance is not paid back in fixed installments over time. Instead, the amount borrowed is repaid through a percentage of the business’s future credit and debit card sales. This repayment structure is often beneficial for companies because it allows them to repay the funding as their sales increase. Merchant cash advances are typically provided by alternative lenders, such as online platforms or private investors.
Another advantage of merchant cash advances is that they are often easier to obtain than traditional loans since they aren’t based on the borrower’s creditworthiness. Instead, they are based on the strength of the borrower’s future sales. As a result, merchant cash advances can be a good option for businesses that do not have strong credit scores but still need access to capital.
A merchant cash advance (MCA) is a type of funding that allows businesses to borrow money based on future sales. Unlike a traditional loan, an MCA does not require fixed payments. Instead, the lender agrees to collect a percentage of the borrower’s daily credit card sales until the loan is paid off. This makes MCA a popular option for businesses that have an irregular or fluctuating income.
MCAs are typically offered by alternative lenders, such as online platforms or private investors. The application process is often less complex than for a traditional loan, and funding can be delivered in as little as 48 hours.
However, MCAs typically come with higher interest rates and fees than loans from banks or credit unions. As a result, they should only be used for short-term financial needs. Businesses with strong future sales growth potential may also find MCAs to be a good option, since they can use the extra funds to invest in inventory or expand their operations.
A merchant cash advance (MCA) is a type of funding that allows businesses to borrow money against future sales. MCA providers typically advance an amount based on a percentage of the business’s monthly credit card sales volume. Repayments are then automatically deducted from the business’s credit card sales, making repayment easy and flexible.
MCA providers also typically don’t require collateral, making them an attractive option for businesses that may not qualify for traditional bank loans. In addition, MCAs can be used for a variety of purposes, such as funding inventory or equipment purchases, covering operational expenses, or financing marketing campaigns.
Because MCAs are repaid with a portion of future sales, they’re often used by businesses that need short-term funding but expect increased sales soon. For example, a seasonal business might use an MCA to finance inventory purchases before their busy season begins. Likewise, a business launching a new marketing campaign might use an MCA to cover the upfront costs.
MCAs are best suited for businesses that need quick access to capital and expect to have increased sales in the near future.
One popular option for small businesses looking for short-term working capital is a merchant cash advance (MCA). Here are some pros and cons.
PROS
CONS
Merchant cash advances provide a much-needed lifeline for small businesses that may not have access to traditional forms of financing. By providing a lump sum of cash in exchange for a portion of future sales, merchant cash advances can help businesses that are struggling to make ends meet. In particular, businesses that are seasonal or have irregular income streams can benefit from the flexibility that a merchant cash advance provides.
In addition, businesses that are expanding rapidly or making a large one-time purchase can also find merchant cash advances to be helpful. Ultimately, merchant cash advances can be a useful tool for businesses of all types.
While a merchant cash advance is not illegal, it is not subjected to the same regulations that a loan is subjected to. That’s because this type of advance is legally classified as a sale, so lenders are able to charge significantly higher rates than they could with a typical personal or business loan.
With both merchant cash advances and loans, a specific sum is made available to the borrower at one time. However, while a loan is repaid in fixed monthly, weekly or daily installments, the repayment of a cash advance is based on a portion of how much the borrower makes in each revenue cycle.
A merchant cash advance is a type of funding that is provided to businesses in exchange for a portion of future sales. The advance is typically based on a percentage of the business’s monthly credit card sales, and the repayment terms can vary depending on the lender. In general, merchant cash advances are more expensive than traditional loans, with rates ranging from 9 to 60% of the borrowing amount.
The main factor that determines whether or not your business can be approved for a merchant cash advance is whether or not you accept payments via credit cards and debit cards. If you have a storefront where credit cards and debit cards are used frequently to pay for goods and services, then you may be able to qualify for a merchant cash advance. The same goes for if you operate an eCommerce website or another type of business that accepts credit and debit card payments but you do not have a storefront or a physical location.
The main qualifying factor for a merchant cash advance is a high volume of credit and debit card payments on a daily and weekly basis.
A merchant cash advance is not technically considered a business loan in the traditional sense, instead, it’s an advance against your future credit and debit card sales. The way you pay back the merchant cash advance is by devoting a percentage of your daily credit and debit card sales to the amount borrowed. Payments are collected by the lender either on a daily or weekly basis. In return for the merchant cash advance payment upfront, the lender will require interest paid in the form of a factor. For example, if you borrow $10,000 at a factor of 1.25, then you will be required to pay back a total of $12,250.
Once the MCA is paid back in full, often the lender can offer you an additional upfront advance payment or you can decide to close the MCA.
Yes and no, let us help you understand. Technically, a merchant cash advance is a loan because it is an upfront lump sum payment provided to a business that needs to be paid back over a period of time with interest. For that reason, an MCA may be considered a type of business loan.
However, a merchant cash advance does not work like a traditional business loan. Furthermore, they are not regulated by the same regulatory bodies that traditional types of business financing are. Because of this, lenders and companies that specialize in merchant cash advances do not have to abide by the same rules and regulations that banks, credit unions, online lenders, and the SBA have to. Instead, MCAs are governed by state laws that can put some restrictions on interest rates and the amount you can borrow depending on the state where you operate.
Merchant cash advances work differently than traditional types of business financing in that they are not paid back with installment payments. Instead, the payments are typically debited directly from a business’s checking account where its credit and debit card payments are deposited daily. The payments can be withdrawn automatically on a daily or weekly basis until the original amount, the factor amount, and any additional interest or fees are paid in full.
Merchant cash advances are also different from traditional types of business financing like SBA and term loans because they can often cost much more. Depending on your creditworthiness, an MCA could come with a factor of up to 1.50. If you obtain a merchant cash advance with a factor of 1.50, that means if you borrow $10,000, you will need to pay back at least $15,000 before the debt can be absolved.
One last main difference between traditional types of business financing and merchant cash advances is the fact that payments are not reported to a credit reporting agency. That means that if you are a new business relying on MCAs for financing, you are not working on building your business credit score at the same time as you would with other types of financing.
The amount you can borrow for a merchant cash advance can vary but will generally range between $5,000 to $500,000. However, merchant cash advances can be for amounts anywhere from $2,500 to $1,000,000. As a business owner, when you first apply for a merchant cash advance, the lender or MCA company should review all of your merchant accounts and credit card processing account statements. They can also take into consideration 3 to 6 months of bank account statements and some basic information about your business. Based on cash flow and credit history, the MCA company can determine how much your business qualifies for.
What are merchant cash advances used for?
A merchant cash advance can be used for any purpose that a business sees fit. However, typically MCAs are used to cover short-term expenses like emergency repairs of infrastructure, machinery, or equipment, or to cover operating expenses during an economic downturn.
For example, if you own your own business and a furnace goes down or a pipe bursts and you need it fixed right away to get your business operational again, a merchant cash advance may be a good short-term option for you. This is especially true if your business is newer and lacks the credentials and credit history to obtain other types of financing. Additionally, MCAs can be funded right away so you can get the money you need as soon as possible to make the repairs you need and to get operational once again.
Yes, merchant cash advances are 100% legal. However, each state may have its own rules and regulations that may put limits on how much someone can borrow using an MCA and how much a lender or finance company can charge for servicing a merchant cash advance.
If you should happen to default on a merchant cash advance, it should not harm your credit score, but you can be found in breach of contract. An MCA is a contract between a borrower and a lender. If you are found in breach of that contract, the lender who provided the MCA has the right to sue you in civil court.
Additionally, many merchant cash advances come with a Confession of Judgement requirement. When you sign a Confession of Judgment, you are preemptively signing away your right to a defense in a civil suit brought forward by the lender.
Basically, if you fail to pay your MCA, they can win a judgment against you and come after your business assets to cover the remaining debt amount plus any damages that may have been awarded.
The main benefit of a merchant cash advance is the fact that they are much easier to qualify for compared to other types of business financing.
SBA and conventional term loans require an incredible amount of paperwork, and often the minimum requirements for qualifying are out of reach for many business owners, especially new businesses.
In addition, SBA loans, and sometimes term loans, often require a high credit score, a large amount of revenue, and at least 2 years of time in business.
On top of that, the loan application, approval, and funding process can often take up to two months or longer for SBA loans and term loans typically require several business days.
For many businesses who need cash now, an SBA loan does not make sense, and a merchant cash advance can be worth the higher interest and fees, especially if you have bad credit.
Bad credit borrowers who own businesses may need to rely on merchant cash advances until they can improve their personal credit scores to a level that they can qualify for an SBA or conventional business loan.
Merchant cash advances can provide fast access to cash, and you don’t need perfect credit to qualify. Specific requirements can vary, but most lenders will have a minimum time in business and minimum monthly revenue requirement. In addition, you must accept credit cards to use an MCA.
To apply for a merchant cash advance, businesses may need to provide financial statements, tax returns, and bank statements. Once approved, businesses can receive funding in the form of an upfront lump-sum payment. Repayment is then made through daily or weekly automatic deductions from the business’s credit card sales.
Applying for a business cash advance is a straightforward process that can be completed online in just a few minutes. At PrimeRates, you can check offers for MCAs to simplify the process. Whether you have good credit or bad credit, you can qualify for an MCA. As an alternative to traditional bank loans, MCAs can give small businesses more opportunities. Especially if they are unable to qualify for a traditional loan. While MCA’s may offer a temporary solution, make sure you take into account the pros and cons.
MCAs are typically easier to obtain than traditional loans, and they can provide businesses with much-needed capital in a relatively short period of time. However, MCAs also come with higher interest rates and fees than other financing types, making them expensive in the long run. Additionally, because MCAs are repaid through credit card sales, they can put a strain on cash flow during slow periods. Finally, MCA’s don’t help build business credit either so you’ll be paying a high price without the incentive of boosting your business credit score.
As a result, it’s essential to carefully consider the pros and cons of MCAs before taking out this type of financing.
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| Loan Amounts | $5,000 to $500,000 |
| APR Range | As low as 9.99% |
| Repayment Terms | Term loans up to 3 years |
| Time to Funding | As fast as 1 day |
| Click “Check Rates” to apply to OnDeck Check Rates | |
Why OnDeck instead of MCAs?
While rates on MCAs can soar into the hundreds, an OnDeck business loan APR is capped at 99% for term loans and 63% for lines of credit. Payments on both of these forms of financing are fixed, so you’ll know each month how much you have to repay. Additionally, their loans can be made available within just 24 hours of approval and they have loan terms ranging up to 36 months.
Pros of OnDeck:
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| Loan Amounts | $2,000 to $250,000 |
| APR Range | 24% to 99% |
| Repayment Terms | 6, 12, or 18 months |
| Time to Funding | A few minutes to several days |
| Credit Score | 560+ |
| Click “Check Rates” to apply to Kabbage Apply Now | |
Why Kabbage instead of MCAs?
Like OnDeck, Kabbage’s term loan APRs are capped at 99% and are also repaid on a fixed-term basis. Their loans can also fund as quickly as just a few minutes.
Pros of Kabbage:
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| Loan Amounts | $5,000 to $250,000 |
| APR Range | 30.00% to 70.00% |
| Repayment Terms | Up to 18 months |
| Time to Funding | As fast as 1 day |
| Click “Check Rates” to apply to QuarterSpot Check Rates | |
Why QuarterSpot instead of MCAs?
QuarterSpot offers term loans with fixed repayment terms and APRs of up to 70%. If you’re approved for a QuarterSpot loan, the overall cost of the loan will more than likely be significantly lower than it would be with a merchant cash advance of similar value.
Pros of QuarterSpot:
» MORE: Business Loans For Poor Credit
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| Loan Amounts | $1,000 to $100,000 |
| APR Range | 10.1% to 79.8% |
| Repayment Terms | 3 to 6 months |
| Credit Score | No minimum personal credit score required |
| Time to Funding | A few minutes to several days |
| Click “Check Rates” to apply to FundBox Apply Now | |
Why FundBox instead of MCAs?
FundBox offers invoice financing for amounts of up to $100,000. Instead of relying on your weekly or daily revenue stream to determine the payments, your payments will be made as your clients repay the invoices.
Pros of Fundbox:
 Invoice Factoring |
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| Loan Amounts | $20,000 to $5 million |
| APR Range | 15% to 68% |
| Repayment Terms | Up to 13 weeks |
| Time to Funding | N/A |
| Click “Check Rates” to apply to Blue Vine Apply Now | |
Why BlueVine instead of MCAs?
» MORE: Compare Invoice Factoring Options
Although a merchant cash advance offers fast cash to borrowers who are in a hurry, this type of funding should be seen as a last resort. Due to the very high-interest rates and frequency of repayments, an MCA can be one of the most expensive forms of financing options.
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