Merchant Cash Advance

What Is a Merchant Cash Advance?

A merchant cash advance is a form of funding that offers businesses quick access to funds by borrowing against the money they will make. That borrowed money is then repaid with a portion of daily or weekly sales. This type of funding typically doesn’t require collateral and can be easier for some new businesses to obtain than traditional small business loans might be.

How a Merchant Cash Advance Works?

A merchant cash advance, or business cash advance, allows a business to borrow against its future earnings.  Businesses can get $5,000 to $200,000 in funding with a merchant cash advance that is then paid back over months or sometimes up to two years with daily or weekly payments. Unlike other business loans, collateral is not typically required to start a merchant cash advance, which means you can receive funds in as little as 24 hours.

Can a startup get a business cash advance?

A business cash advance is an option for startup businesses that may not yet qualify for other types of business financing. Because a business cash advance is repaid based on your business’s daily sales, time in business and other factors that can make securing financing difficult for startups don’t apply. If your startup has strong daily sales, a business cash advance could be an excellent solution for your fast-capital needs.

Startup loans and business credit cards can also offer accessible financing for startups and may be able to round out your financing plans.

How is a business cash advance repaid?

Your cash advance is repaid with a portion of your business’s daily or weekly sales. Depending on the way your cash advance is financed, your lender will either take a percentage of credit card sales or a percentage of the total business sales on a daily or weekly basis. Terms vary by funders, and we have 75+ lenders in our network. Your funding manager can walk you through all the terms and explain the nitty-gritty of your cash advance to ensure you’re getting the best possible financing deal.

When You Should Consider a Merchant Cash Advance

There are some situations where a merchant cash advance might be the best funding option, like:

• Businesses with low credit scores
• Businesses with short time in business
• Businesses that deal in primarily credit or debit transactions
• Businesses that need cash quickly, without collateral

A merchant cash advance isn’t right for every business owner in every situation. There are some pros and cons to taking funding in the form of a merchant cash advance that are important to consider.

Merchant cash advance pros vs. cons

The pros of a merchant cash advance are what make it such a convenient form of funding. Because eligibility is based on the ability to repay the advance, usually the requirements for this type of funding aren’t too strict, making it ideal funding for businesses that are new, have bad credit, or lack collateral. Plus, you can get funding quickly with a merchant cash advance. And, if you have low sales, your payments will stay low too.

The cons of a merchant cash advance though can sometimes outweigh the pros. It can end up costing you quite a bit depending on the factor rate of the cash advance. Plus, there’s no benefit to repaying early like there might be on other funding options. If you have high sales, you’ll have high repayments. And you could have frequent payments, either daily or weekly. 

How to Get a Business Cash Advance 

Qualifying for a cash advance, like the funding itself, is often fast and easy. Due to the nature and terms of the loan, the requirements for a business cash advance are typically pretty lenient.

Qualifications and prerequisites

If you’ve ever applied for traditional business funding, you’ll notice that applying for a business cash advance is nowhere near as complex or grueling. You likely won’t need to offer up your credit score or any collateral. This type of funding is easier to acquire. 

So for your application you’ll only need a few things:

• Four to six months of past bank statements or receivables
• This super-simple cash advance application filled out

Application process

The application process for a merchant cash advance is easy and quick. You’ll need the materials mentioned above and then you’ll have to submit your application. Once that’s done you’ll likely hear back about funding within 24 hours and have access to funds shortly after.

Payout & repayment outline

The repayment process for a merchant cash advance differs from that of a normal loan or even a credit card. Instead of making monthly set payments, you’ll have a set percentage of your credit and debit card sales deducted from your daily or weekly transactions. The frequency will depend on the lender and the funding you’re offered. Those daily or weekly payments will go towards repaying the amount of the advance plus the factor rate of the funding. For a merchant cash advance, the lowest you’ll likely find is a factor rate of about 1.2. 

Qualifying for a Business Cash Advance

Qualifying for a cash advance, like the funding itself, is often fast and easy. Due to the nature and terms of the loan, the requirements for a business cash advance are typically pretty lenient.

What you’ll need to do to qualify for a merchant cash advance:

• Provide 4–6 months of past bank statements or receivables
• Fill out this super-simple cash advance application

What you can typically skip when applying for a merchant cash advance:

• A mountain of paperwork
• A credit pull
• Your business’s precious collateral

How to Get the Best Rate

Securing an affordable factor rate will reduce the cost of capital on your merchant cash advance. The first step toward securing the optimum cost of capital on your merchant cash advance is to determine how much capital you need.

Borrowing too much can increase the cost of repayment and borrowing too little can leave you in the financial pickle you’re trying to get out of. To avoid both of those scenarios, our dedicated funding managers will walk you through your options and compare your offers to help you choose a business cash advance deal that fits your needs and budget.

 Fill out our application to be matched with the best options for you and your business. 

FAQs 

What is a merchant cash advance used for?

A merchant cash advance is used when businesses need cash quickly and maybe don’t have the time or the qualifications for other types of funding. 

What is the difference between a loan and a cash advance?

The major differences between a loan and a merchant cash advance come with the qualifications necessary for each. Because they’re entirely different products, they each have different financing terms, application qualifications, and repayment terms. 

Does a cash advance affect credit score?

Because a merchant cash advance is repaid with daily or weekly sales, a credit pull isn’t always necessary. So the application itself won’t impact your credit at all. However, it will be added to your debt and your timely repayment can help build your credit. Just as paying late or defaulting can hurt your credit score.