Merchant Cash Advance
Payment amounts for an MCA are based on future receivables which will be explained below. A Merchant Cash Advance is an ideal solution for short-term initiatives such as purchasing additional inventory or perhaps a new piece of equipment to take on additional jobs for your business. This makes a Merchant Cash Advance the best value for small businesses not benefitting from a fixed payment schedule of traditional business loans.
Ready to grow your business by using our Merchant Cash Advance options?
Merchant Cash Advance FAQ:
What Is a Merchant Cash Advance (MCA)?
- A Merchant Cash Advance (MCA) Is a type of product in which a business owner receives a lump sum that is paid back via a fixed percentage of future receivables. Payments are deducted on a bi-weekly, weekly or daily basis depending on your cash flow.
- With this kind of business financing arrangement, the business owner agrees to receive a lump sum of capital in exchange for the rights to purchase future receivables at a discount rate.
- A Merchant Cash Advance is available to small business owners with no collateral, business credit history, or low fico credit scores. Amount of financing that each business qualifies for will depend on the amount the cash flow of the business.
How does a Merchant Cash Advance work?
- Merchant Cash Advance terms and borrowing rates will depend primarily on previous and anticipated monthly sales volume. This tends to be the main criteria for qualification. If your business has robust cash flow, less than perfect credit may not inhibit qualification.
- Your business credit profile does impact several other elements of the Merchant Cash Advance loan. This includes the fixed percentage of daily or weekly sales that gets deducted, which is called your “holdback rate.” Typical holdback rates run between 10% and 20% of monthly sales. Each borrower is assigned a “Factor Rate” instead of an interest rate which determines the total amount to be repaid to the Merchant Cash Advance provider. A common factor rate typically ranges from 1.09 to 1.42.
What is the holdback rate?
This is an agreed-upon monthly percentage of your business’ future receivables as payments that are withheld as payment for the MCA. Usually they tend to be around 10% to 20%.
What is a factor rate?
- A factor rate is a percentage (often expressed as a decimal ranging from 1.09 to 1.42) that shows how much “extra” you owe on a loan. Example: You borrow X and you pay back Y.
- Example of a Merchant Cash Advance:
If $50,000 is borrowed with a factor rate of 1.20, this means the amount owed is $60,000 in total. MCA providers deduct a weekly or daily percentage over the term of the advance. If the term of that particular advance was for 18 months, your weekly payment amount would be $769 or your daily payment would be $154. Please note that if you choose to take a daily payment, payments will only be deducted from your business account Monday through Friday excluding weekend and holidays.
What are the advantages and disadvantages of a Merchant Cash Advance?
It allows for less than perfect credit, cash flow bottlenecks, and less than one year in business. It may be the only way to get the funding you need if you have met any of the previous criteria. Approval are given within hours.
- Get access to capital quickly
- The approval process is easy
- Less than perfect credit accepted
- Use for a variety of purposes
- Higher rates & fees than with traditional loans
- May have to change merchant services provider
- A shorter repayment term may reduce working cash flow
Who Qualifies For a Merchant Cash Advance?
Approved businesses generally met the following criteria:
How do you apply for a Merchant Cash Advance?
Step 1: Evaluate your business’s needs.
Before you embark on the application process, evaluate if this is the best option to finance your business needs. Be sure to assess the following:
- Will I be able to use the capital for my desired purpose?
- Will the repayment structure help or harm to my operating capital?
- Do I know exactly how much funding to request?
Step 2: Submit business bank statements.
- Upload the last 4 months of your business bank statements.
- Once bank statements are submitted, an electronic application will be emailed to you.
Step 3: Complete quick 1-page electronic application.
Upon completing our one-page online application, our underwriting team works reviews your information to give approvals best suited for your busines
Step 4: Connect and discuss.
Once your application is submitted and reviewed, a trained and skilled representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This will ensure that there are no surprises or hidden fees during repayment.
Step 5: Receive approval.
Overall processing can take a few hours, and once approved, the funds will appear in your account the same business day.