What Is A Merchant Cash Advance?
Merchant cash advances offer a viable alternative to typical bank loans for small businesses. A merchant cash advance provider provides funding to business owners in a lump sum amount upfront.
The advance is repaid with a percentage of the business's sales. An MCA may be an alternative for firms that have many credit card transactions and want cash rapidly. Or may not qualify for a standard loan.
Merchant Cash Advance Details
Maximum Advance Amount
Up to $500k
As early as 24 hours
Payments are made daily or weekly through your merchant or bank account
1.1 to 1.5 on average
“Merchant cash advances are simple to get and quick to finance”
Top Merchant Cash Advance Companies
It's important to know the best merchant cash advance companies before you hand over your funds. So, here are some of the top merchant cash advance companies.
Fundbox is the best option for applicants with poor credit history. It does not provide a merchant cash advance. Still their lines of credit are an excellent alternative for borrowers with low credit.
Merchant cash advances usually have lower approval requirements. And Fundbox's line of credit is no exception. Borrowers with a personal credit score of 500 or above can apply.
Credibly is another startup friendly alternative that provides funding to small firms. Who have been in business for at least six months and make $15,000 in monthly sales.
They can also provide capital in as little as 48 hours. Making it a faster choice than a typical loan. As well as any other merchant finance or merchant advance financing.
They demand a 2.5 percent origination fee and their factor rates result in a higher APR. But it might be a viable alternative for a high performing business.
National Funding does not charge an origination fee on merchant cash advances. Small business owners will still have to bear the high interest rates associated with a merchant cash advance. But National Funding has lower acceptance requirements for small business owners needing a Merchant Cash Advance or even equipment financing.
How Does A Merchant Cash Advance Work?
Typically, merchant cash advances function when an MCA finance business gives you a flat sum of money.
You pay back the financing plus interest as a percentage of your daily or weekly debit and credit card sales. Then payments are automatically deducted from your merchant account until you have returned the whole amount plus costs.
Unlike most other forms of business loans merchant cash advances do not have fixed annual percentage rates or payback lengths. As a result, businesses that rely on debit and credit card purchases for income frequently utilize MCAs.
Some financing organizations will take payments straight from your bank account rather than a merchant account. This means that even businesses that do not rely primarily on debit or credit card sales can benefit from this sort of financing.
The method is similar to MCAs except that the merchant cash advance firms link to your bank account. They collect payback plus costs via ACH withdrawals.
Merchant cash advances are simple to get and quick to finance. MCA lenders may connect to your bank account or merchant service provider. They are however one of the costliest financing options available.
Pros And Cons Of A Merchant Cash Advance
Pros of Merchant Cash
- Rapid access to funding
- Available to enterprises with poor credit
- You will be reimbursed based on your sales
- Simple approval procedure
- Suitable for a variety of commercial applications
Cons of Merchant Cash
- Fees are higher than on most other loans
- It's quite easy to become caught up in a debt cycle
- Credit card sales are deducted daily which affects cash flow
- Contracts that are difficult to understand and minimal regulation
“Qualifying for a merchant cash advance may be the simplest part of the process”
How to Qualify and Apply for a Merchant Cash Advance
Qualifying for a merchant cash advance may be the simplest part of the process. Unlike other company financing solutions applicants do not have to be in business for a certain number of years to qualify.
The quantity and number of your credit card transactions are more relevant than a company's credit profile. Thus, personal and business credit details are less important.
Most suppliers provide online applications which makes an already speedy procedure even easier.
Top Alternatives to a Merchant Cash Advance
If you determine that a merchant cash advance is not the best option for your small business then you'll need to know where to go for other small business funding. Overall, we would recommend looking at all alternatives to MCAs first since other financing methods can be a better fix.
Credit Lines For Businesses
Business lines of credit are a popular alternative to MCAs. They are a feasible solution for startups or enterprises with poor credit.
Not only can they be used for any purpose but they also enable you to draw on a credit line. While you only pay interest on the cash you draw rather than the whole amount of your credit line.
While some firms may struggle to qualify for a small business bank loan or a long-term loan, an internet-based small business lender (also known as an alternative lender) is more flexible with short-term small business funding.
These short-term business loans like MCAs often have straightforward applications and may be processed rapidly. However, unlike MCAs, these loans will feature a standard loan structure with payments spread out over a specified length of time.
Furthermore, short term loans may have higher interest rates than other products. They are far less expensive than merchant cash advance.
The Bottom Line
If your company generates a significant amount of its income from debit and credit card payments you will realize how useful a merchant cash advance is. It is a short-term financing instrument with a simple application procedure and gets you quick funding.
In general, you should examine any alternative financing options before turning to an MCA.
So, before you look into merchant cash advance firms begin your funding by checking out some of the alternatives we've suggested, it may prove worthwhile to read small business loan reviews of lenders who offer a variety of financing solutions before committing to an expensive and short-term loan like an MCA.