What is a Merchant Cash Advance and When to Use It?

Business owners in search for funding would consider various types of loans and financing options. One of the most popular choices is a merchant cash advance. But before you decide to get one, you need to know some essential facts so you can evaluate as to whether this is the best option for you.
Merchant cash advance isn’t really a loan. A merchant cash advance enables a business owner who gets credit card payments to get a cash advance. It is not a loan in the sense that the cash advance is based on the future revenue or sales of credit cards.

Merchant Cash Advance
Merchant Cash Advance

How Does It Work?

This type of financing is for businesses where revenues come from sales of credit cards or debit cards like for instance retail shops or restaurants. How does it work? You get to have upfront cash in return of the future sales. There are two ways that repayments are structured which include the following:

Who Qualifies

Is your business eligible for a merchant cash advance? This would depend on different factors. But one thing is for sure, providers are not as strict as other firms. You don’t need to have any collateral or good credit rating in order to get approved. This explains why many turn to merchant cash advance providers. This may just be the solution you need. The eligibility standards are not that high so for small business operators, this is one viable option to look at.

How to Apply

Once you meet the eligibility requirements, the next step is to apply. The application is quite fast and easy. MCA companies basically look at the credit card processing statements. Depending on the company, there are MCA companies that will require you bank statements and credit score. In general, most of them operate online and you can also submit your applications online. Unlike conventional financing tools that require you to submit tons of paperwork, not to mention the long waiting time, your application can be approved the very same day.
The documents that you need include the following:

  • Credit card processing statements
  • Voided business check
  • Driver’s license
  • Bank statements
  • Credit score
  • Business tax returns

Know More About the Factor Rates

When getting a merchant cash advance, you need to know about the factor rates. The rates actually vary from 1.14 to 1.48 depending on the company. You then multiply this rate to the total amount of loan and that is exactly the cost of the cash advance. When you convert it to APR, the rate is t 15% which can be quite expensive especially if you are going to compare it with other financing options. So, before you take that plunge, make sure that you read the terms and conditions so you won’t be surprised if they have hidden fees.

Repayment Time Frame

How long will it take you to pay off your merchant cash advance? The average time is 8 to 9 months. Then again, it is important to note that this may vary depending on the terms. There are cases where you pay your loan in 4 months or even in 18 months depending on the business.

Advantages of Merchant Cash Advance

Despite being considered expensive, there are still several reasons why people opt to have merchant cash advances which include the following:

  • The application process is quite easy and fast. Imagine if you have to apply for a bank loan. Not only do you have to submit a lot of paperwork, you also have to wait longer. Plus, you aren’t even sure if your application will be approved.
  • For business owners with bad credit standing, this is not an issue. Merchant cash advance companies are not so strict when it comes to cash advances. This type of financing option has higher approval rates.
  • Unlike other loans where you are required a collateral, it is not really needed. You don’t need to use any of your assets as a collateral in order to get the funds that you need.
  • In terms of repayment, it wouldn’t be that difficult on your par since you will only repay based on the amount that you make.


While there are advantages, there are also disadvantages that you have to take into consideration:

  • It may be an expensive option especially since rates are quite high. It may tighten your cash flow which can them affect your business.
  • What they offer is basically a short-term solution. So, if you are looking for a long-term solution, you have to look for other ways.
  • If not used correctly, this may cause more harm than good.

MCA Providers: What to Consider

After carefully weighing your options and you think that this is the best option for you,the next step is to find merchant cash advance providers. Finding a good and reputable company is definitely important so you can won’t experience any problems later on.

Here are the essential things that you have to take into consideration:

  • Read reviews and feedback regarding the company. It is also a good thing if you have a list of MCA providers. You can start filtering your choices based on the reviews you see.
  • Once you have finally narrowed down your choices, you can start comparing rates. Take the time to read the policies of the company so you can get the best deal.
  • If you have questions, feel free to call and ask them. A reputable merchant cash advance company should have a responsive customer service. This is one of the things that you will have to consider to know how they handle their clients.
  • Last but not the least, you should read everything that is stipulated in the contract. You have to make sure that you understand what’s written completely.

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