Merchant Cash Advance

We collaborate with small business owners to facilitate merchant cash advance loans from MCA providers.

Intro to Merchant Cash Advances

If you’re a small business owner in immediate need of capital, a Merchant Cash Advance (MCA) could provide the solution you’re looking for. Also known as a Business Cash Advance or MCA Loan, this financing option offers easy accessibility and flexible payment terms. Unlike traditional loans, MCAs typically do not require an excellent credit score or extensive financial documentation for eligibility.

Payments for a merchant cash advance are based on a percentage of daily credit card sales, making them variable and aligned with your business’s cash flow. This flexibility means you’ll pay more during busy periods and less during slower ones, which can be advantageous for businesses with fluctuating revenue streams. It’s particularly beneficial for small businesses that may struggle with the rigid repayment schedules of conventional loans.

In this guide, we’ll cover key questions such as:

What Is a Merchant Cash Advance?

A Merchant Cash Advance (MCA), also referred to as a “Business Cash Advance,” “Credit Card Factoring,” or “Credit Card Processing Loan,” offers business owners a lump sum of capital. Repayment is based on a fixed percentage of future daily credit card sales, known as the Holdback Rate. These payments are automatically deducted each day, adjusting in size based on the volume of debit and credit card transactions.

Qualifying for a merchant cash advance is generally easier compared to other small business loan options. It’s suitable for small business owners with minimal collateral, limited business credit history, or lower FICO credit scores. The amount of financing available is determined by the projected future credit card receivables or sales processed through credit card payments.

In this financing arrangement, business owners receive an upfront sum of capital at a discounted rate in exchange for a portion of their future credit card sales. This provides immediate access to funds without the delays associated with waiting for full credit card settlement periods.

MAX FUNDING AMOUNT

$5K - $1M

FACTOR RATES

Starting at 1-6% p/mo

TERM

3-24 Months

SPEED

1-2 Business days

How Does a Merchant Cash Advance Work?

Here’s how a merchant cash advance works compared to traditional bank loans: The amount you can borrow and the terms of your merchant cash advance primarily depend on your past and expected monthly credit card sales volume. This is the key factor for qualifying for a merchant cash advance. Strong sales from debit and credit cards can often outweigh poor credit history as a barrier to qualification.

However, your business credit profile also influences other aspects of the merchant cash advance, such as the “holdback rate” or “holdback percentage.” This is the fixed percentage of daily or weekly credit card sales that are deducted to repay the advance, typically ranging from 8% to 15% of daily sales. Therefore, your repayment amount fluctuates with your business revenue.

Instead of an interest rate, merchant cash advances use a Factor Rate to determine the total repayment amount to the provider. Factor rates typically range from 1.09 to 1.5 and are applied to the advance amount to calculate the total repayment.

Example of a Merchant Cash Advance:

Let’s say you borrow $50,000 with a factor rate of 1.4. This means you’ll owe a total of $70,000. The provider deducts 10% of your daily debit and credit card transactions each time you batch out.

In the first month, if your business generates $100,000 in card transactions, with a 10% holdback rate, you’d pay $10,000 (10% of $100,000) towards the advance that month. This is typically collected daily as a fixed percentage of your card sales.

If sales drop in the second month to $70,000 in credit card receipts, your daily payment would adjust accordingly. At the same 10% holdback rate, your daily payment would be $7,000 (10% of $70,000) for that month.

This flexible repayment structure aligns with your business’s revenue, ensuring that payments adjust proportionally to your cash flow.

Merchant Cash Advance on Future Credit Card Sales – Research, Facts & Reports

Merchant cash advances are tailored for rapid repayment, accommodating varying sales volumes. Despite their higher associated costs, these products boasted an impressive approval rate of nearly 90% in 2023, up from 84% in 2020. The global market for merchant cash advances is projected to expand to $26.3 billion by 2029. This growth is driven by sectors such as restaurants and retailers, which often face cash flow challenges—a significant factor contributing to small business failures.

What Are The Advantages of a Merchant Cash Advance?

Merchant cash advances stand out as one of the most accessible small business financing options, even for those with subpar credit, payment history issues, cash flow challenges, or less than a year in business. Approval can often be secured in less than 24 hours due to relaxed requirements.

The repayment structure of merchant cash advances is particularly advantageous for businesses experiencing seasonal fluctuations or occasional revenue gaps. Payments are based on future sales, meaning during slower months, businesses pay smaller amounts compared to the fixed monthly payments typical of traditional loans.

This flexibility allows seasonal businesses to use funds during slow periods and repay larger amounts during busier seasons, avoiding the burden of fixed monthly payments that may not align with business performance. For example, borrowing $100,000 with a factor rate of 1.3 would result in a total repayment of $130,000. Depending on the repayment term—whether six months or twelve months—the effective APR could vary significantly, potentially ranging from around 30% to 60%.

This variability in payments makes merchant cash advances an appealing choice for businesses seeking to manage cash flow effectively through periods of sales fluctuations.

What Are The Disadvantages of a Merchant Cash Advance?

Loose eligibility requirements often come with a trade-off. Borrowers with lower FICO scores and cash flow challenges are statistically less likely to repay merchant cash advances on time. Consequently, merchant cash advances are among the most expensive small business financing options available. The higher payment amounts are designed to mitigate the increased risk borne by the merchant cash advance providers.

These substantial and frequent payments can strain your operating capital, even during periods of strong sales.

Moreover, unlike traditional financing options such as business lines of credit or term loans, there is no benefit to paying off a merchant cash advance early. The repayment amount remains the same regardless of when you settle the advance. In contrast, early repayment of loans with amortization schedules typically reduces the total interest paid over time.

PROS
CONS

Merchant Cash Advance Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Merchant Cash Advance?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$120K+

CREDIT SCORE

550+

TIME IN BUSINESS

4 months+

How To Apply For a Merchant Cash Advance:

As your funding provider, you can access up to $1 million with terms extending up to 24 months. Here’s how to initiate the application process:

Step 1: Assess Your Needs

Before proceeding, ensure that this funding option aligns with your specific needs and circumstances. Consider whether the capital will be used effectively for your intended purposes and evaluate how the repayment structure will impact your operational capital. It’s crucial to determine the exact amount of funding required to meet your objectives.

Step 2: Gather Required Documents

Prepare the following documents for your application:

Step 3: Complete the Application

To begin the application process, you have two options: you can either give us a call or fill out our streamlined online application form. Provide the required information, including the amount of funding you are seeking.

Step 4: Consult with a Representative

Once you submit your application, one of our representatives will promptly reach out to you. They will provide detailed information about the repayment structure, interest rates, and terms available for your specific options. This ensures transparency and clarity regarding any fees or conditions throughout the repayment period.

Step 5: Receive Approval

Usually, the approval process takes a few business days. Upon approval, the funds will be deposited into your designated checking account within 1-2 business days.

Setting Up Your Merchant Cash Advance – What’s Next?

A small business loan not only provides financial support but also serves as a valuable opportunity to strengthen your credit profile.

Regardless of the specific type of small business loan you secure, it’s crucial to make timely and complete payments on all obligations. Keeping balances within recommended limits for revolving credit products is essential. For accounts receivable financing, ensuring prompt customer payments enables the financing company to manage collections efficiently.

Consistently making payments on time will have a positive impact on your credit score, setting the stage for favorable rates and terms on future small business loans.

What If I’m Declined For a Merchant Cash Advance?

If your application for a merchant cash advance is not approved, it may be due to challenges such as insufficient operating capital to manage the daily repayment structure or issues with your merchant account. Responsible merchant cash advance providers, like us, would recommend exploring alternative products that place less strain on your operating capital and offer more flexible repayment terms. These alternatives could include accounts receivable factoring, equipment loans, or working capital loans.

For business owners experiencing difficulty in taking on additional debt, we might suggest considering alternative financing tools or loan options. These could involve business credit cards or personal loans, which generally have more lenient qualification criteria compared to traditional small business loans and can aid in building your credit profile.

If your decline was linked to poor FICO scores, consider using credit repair services to enhance both your personal and business credit ratings. These services identify and resolve issues impacting your credit scores, such as settling outstanding debts or reducing personal liabilities. Improving your creditworthiness can increase the likelihood of future approvals for merchant cash advances and potentially lead to lower interest rates on small business loans.

Contact us

175 Great Neck Rd # 206, Great Neck, NY 11021, United States

info@60daycapital.com