Merchant Cash Advance

A merchant cash advance is different from traditional borrowing because it is not really borrowing at all. If you run a business that accepts credit cards, a merchant cash advance company - often called a factoring company - gives you money for the right to collect future credit card receipts.

How Merchant Cash Advance Work

With this type of financing, you get a cash advance – usually approved and funded in just a day or two – with very little paperwork involved. In turn, you agree to pay back the advance, plus a fee, by letting the funding provider take a portion of your credit card sales each day until the entire amount has been repaid.

While a merchant cash advance can certainly be a quick way to get cash, it can also be quite expensive. Fees can range from 15% to 80% APR of the amount financed. However, merchant cash advance providers measure their fees as a factor rate, which can range from 1.14 to 1.48. The advance amount you receive is multiplied by that factor rate to determine the total amount you’ll pay back. You’ll pay this back by giving the funding provider a fixed percentage of your credit card revenues each day until the loan has been settled, meaning you actually repay a lower amount of money during slower months. Average repayment time frames are 8 – 9 months, but can be as short as 4 months and as long as 18 months. The higher the fixed percentage of your credit card sales you’ll share, the shorter the repayment time frame will be.

Who Qualifies

If you don’t qualify for financing at a traditional bank or financial institution, MCAs could be an option. Merchant cash advances are a good solution if you have little or no collateral, limited business history, or a poor credit rating.

If you receive a large portion of your revenues through credit card payments (for example, restaurants and retail stores), you can use a merchant cash advance as a short-term financing tool to help with cash flow, purchase inventory, pay other debts, meet unexpected expenses, and more.

Advantages of a Merchant Cash Advance

• You don’t need a stellar credit history to qualify.
• Cash-flow friendly! Your business remits less on slow days and more on busy days to keep cash-flows smooth.
• You don’t have to worry about fixed monthly payments during tough times, and there is no set maturity date. This enables your business to be more flexible financially while fully funding all of its operations.
• The remittances are automatic and don’t require you to write any checks.
• Getting a Merchant Cash Advance is faster and easier than obtaining a traditional loan, making your much needed capital more accessible when you need it quickly.