What is a Merchant Cash Advance?

The Basics 

In the business world, to be successful requires a healthy cash flow. When cash runs out during economic slumps or business off-seasons, it can be difficult to stay afloat. The lengthy borrowing process from banks and other traditional lending institutions has become highly restrictive when working capital is needed quickly. As a result, more and more businesses are turning to easier sources of funding like a merchant cash advance. By submitting basic information and documentation, businesses can be approved within 24 to 48 hours and have the cash in hand within 7 to 10 days.

turn credit cards into money

How a Merchant Cash Advance Works

A merchant cash advance is a type of funding that is not a loan. This type of financing is for any businesses that have credit or debit card sales. Unlike a traditional loan, which is repaid on a fixed schedule (typically weekly, biweekly or monthly), a merchant cash advance is repaid daily. Read more: MCA vs. Traditional Loan.

With a merchant cash advance, a lender provides unsecured capital to business owners in exchange for a percentage of future debit and credit card sales. The cash advance amount is a predetermined amount based on a business’s average monthly credit card sales volume. There is also no interest, only a provider’s fee that is agreed upon by the lender and the borrower from the start. There is likewise no preset time to pay back, eliminating the pressures that late payments or penalties create.

Businesses that accept credit cards are qualified for merchant cash advances, and most cash advance companies approve about 95 percent of qualified applications.

Typical Uses

A merchant cash advance can be used for almost any business expense, including:

  • Help with temporary cash flow
  • Pay debt or a tax bill
  • Expand facilities or open new store location
  • Purchase new equipment or inventory
  • Take advantage of short-term purchasing opportunities (sales/liquidations)
  • Invest in new marketing activities or advertising
  • Unplanned expenses

Keep in mind, lenders may want to know how you plan to use the funds from the merchant cash advance. Some lenders are flexible on use, provided you maintain a steady flow of credit card transaction. On the other hand, some providers will only allow you to use the money to grow your business. These companies will require proof that your business is actively working on paying off the advance by increasing sales. Make sure you have a plan in place before seeking funding. Find out about the pros and cons of MCA.

Qualifications

Part of the appeal of a merchant cash advance is its simplicity. As opposed to a traditional loan, which more often than not requires collateral or a personal guarantee, a merchant cash advance is far less restrictive. To qualify a business must show:

  • You have processed credit cards for a minimum of six months
  • There is no existing merchant cash advance agreement with another company
  • No prior bankruptcies or property liens
  • One or more years on a property lease
  • The business has been in operations for at least one year





credit card machine

Although a strong credit rating isn’t required for approval, a solid financial history allows the lender to be able to offer better rates and even larger advances in some cases.

Learn More

Find out more about the ins and outs of a merchant cash advance by reading our Merchant Cash Advance Buyer’s Guide.

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