What Is a Business Payday Loan, and What Are the Requirements for Applying?

Business Guides

Jacques Famy Jr
Review By Todd Millman

What is a Business Payday Loan?

A business payday loan is a term colloquially used to describe options like merchant cash advance options or business cash advance transactions. Technically, a business payday loan isn't a loan but rather a set of business lending options such as merchant cash advance work or business cash advance transactions.

These funding solutions are recognized for their flexibility, tailored particularly for small business owners in need of small business lending. They stand out for being short-term and higher cost financing mechanisms, offering a lifeline to businesses that may not qualify for traditional bank loans due to poor credit history or lack of collateral. The repayment process of a merchant cash advance, despite its little flexibility, is unique in that it is proportionate to a business's daily credit card revenue, aligning with the ebbs and flows of sales volumes.

What is a Business Cash Advance?

A business cash advance is a future purchase of revenue agreement from a business. This form of financing caters to companies with immediate financing needs, allowing them access to capital based on the current revenue of the business. Subsequently, they agree to pay back a greater sum, which is determined using a factor rate rather than a traditional interest rate. Notably, a business cash advance is not a conventional loan but a strategic transaction that involves the purchase of future receivables at a discounted rate.

The repayment process is uniquely flexible; it doesn't involve a fixed schedule but instead relies on a set percentage of future credit card deposits or revenue deposits until the merchant has paid back the full amount, making the term limit variable. This can be particularly helpful for businesses with fluctuating sales.

  • Costs are based on a factor rate ranging between 1.18 to 1.45.
  • Estimated time to repay ranges from 4 to 18 months, accommodating various repayment capacities.
  • Allows for all credit types, even catering to those requiring a secured business credit card with a cash deposit due to little or poor credit history.
  • Repaid via a convenience ACH debit payment drawn directly from the business' bank account daily or weekly.
  • Same day business funding is available, showing the urgency in meeting immediate cashflow needs from application to funding.

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is a financing option wherein a business receives a lump-sum cash advance upfront, typically from a merchant cash advance provider. This advance is then repaid through a set percentage of the business's daily credit card transactions and debit card sales. Unlike traditional loans, MCAs do not have fixed terms, as future sales can and may fluctuate, providing a flexible repayment structure that adjusts with the business's sales volume.

  • Factor Rate ranges from 1.18 to 1.45, reflecting the cost of the advance. This cost the "payback amount" is often higher than traditional loans, considering the merchant cash advance rate can implicitly translate to an APR of up to 350%.
  • Estimated time to repay between 4 to 18 months, depending on daily sales which include both credit and debit card sales.
  • All credit types are considered, from Excellent to bad credit, making this a viable option for businesses with less-than-perfect credit histories.
  • Repayment is a set percentage—known as a holdback rate—of future credit card sales and debit card sales, giving merchants a variable repayment plan that correlates with their transaction volumes.
  • Application to funding can be streamlined, potentially providing capital in as little as 24 hours.

Understanding the mechanics of how merchant cash advance payments are structured, especially with regard to the inclusion of debit card sales in the repayment process, is crucial for business owners considering this financial solution. The simplicity and speed of obtaining an MCA can be quite attractive, especially when traditional financing is not an option. However, it is important to be aware that because the merchant cash advance provider assumes the risk, the cost of funding may be high, often reflected in the merchant cash advance rate. It is also vital to ensure that the business's volume of credit and debit card sales can sustain the cash advance repayment.

How does a Business Payday Loan work?

Though not a traditional business financing product, a business payday loan, more accurately described as a merchant cash advance (MCA) or an ACH loan, operates as a unique form of small business lending. Your approval for this advance lender option is contingent upon several factors, including the current revenue of the business, the personal credit of the business owner, and other critical data points relevant to the business's financial landscape.

It's important to underscore that these business lending options don't typically necessitate detailed financials for approval, and even if you have a lesser credit score, you could still be on the receiving end of financing – reflecting a more nuanced approach to assessing creditworthiness. By opting for an MCA or ACH loan, the repayment terms usually align with your business's sales, offering more fluidity in managing loan repayments.

What do I need to apply for a merchant cash advance?

Applying for a merchant cash advance, one of the more flexible business financing options, typically has straightforward eligibility requirements. Understanding your financing needs is crucial when applying for a merchant cash advance. To secure approval, the following documentation is typically required stipulations:

  • A one-page Application
  • Three months of business bank statements
  • Three months of merchant processing statements, which are fundamental to evaluate your sales volume and consistency.

Each piece of documentation plays a significant role in providing financiers with a clear picture of your cash flow and sales volume, streamlining the process and ensuring it aligns with your specific business financing needs.

How Does a Business Cash Advance Differ from a Payday Loan?

A business cash advance is an advance off of future revenue of a business. This financing method provides businesses with the necessary funds by leveraging future income—typically via credit card sales. In contrast, a payroll cash advance is a specific form of short-term borrowing where a consumer can receive an advance on their upcoming paycheck from cash advance issuers. While the objective is similar—access to quick funds—the mechanisms differ significantly.

For instance, a payday lender might provide quick financing to an individual in need, often with minimal credit checks required and with online management systems for efficiency. These loans usually come with a cap which might vary by state, ensuring that consumers don't borrow more than they can handle. However, it's vital for borrowers to be aware of the associated interest rates which can be substantial, and state regulations that may limit the maximum fee a lender can charge.

What Are the Business Payday Loan Uses?

  • Working Capital: Keep operations smooth with a small business loan financing option that can bolster your working capital when it's low.
  • Purchase equipment: Ideal for purchasing inventory or specific equipment, equipment financing can ensure you have the tools needed without depleting your cash reserves.
  • Support cash flow for projects: Ensure your project's success by maintaining adequate cash flow, possibly through a flexible line of credit that complements your business payday loan.
  • Business Expansion: Leverage financing solutions to scale up operations and expand your reach in the market sustainably.

What are the Requirements for Business Payday Loans?

Requirements for business payday loans, which are essentially cash advances, include but are not limited to:

  • 6 months in business or greater—this demonstrates a level of stability and operational history that not only business credit bureaus but also lenders, consider important. Consistency in the duration of operations can contribute to a favorable risk assessment.
  • Minimum $15,000 per month in revenue deposits month over month—consistent revenue indicates to lenders your ability to handle the loan and make minimum payments on time, signaling financial health and reliability.
  • Personal credit above 525 FICO—although lenient, eligibility for such advances typically requires a basic credit score threshold, reflecting a measure of creditworthiness.
  • Operates with a Business Bank Account for a minimum of 3 months or more—this criterion often helps prove the business's ongoing activities and financial transactions to lenders, verifying regular business operations and financial management.

What are the Pro’s and Con’s of a Business Payday Loan?


  • Same Day Business Funding
  • Subprime and bad credit considered
  • Limited time in business required
  • Limited documentation required
  • Flexible repayment terms, crucial for maintaining cash flow and the overall financial health of a small business


  • Expensive costs. Factor rates are significantly higher than traditional financing interest rates, which can be seen as one of the main disadvantages of certain types of short-term loans.
  • Short term payback period between 4 to 18 months, which may not be feasible for businesses with irregular cash flow—a notable downside.
  • Payments deducted daily or weekly can lead to substantial pressure on a business's operating budget.
  • Lower amount of approvals compared to long-term business loans, indicating a stricter qualification criterion which can be a major hurdle for many small businesses seeking funding.

What is the Application Process of a Business Payday Loan?

  1. Application- Begin by submitting an online application detailing your business information such as the legal name, DBA, address, and pertinent online presence like your website. This step also requires personal details of the owner, including the social security number and date of birth.
  2. Documents- Provide recent business bank statements spanning 3 to 4 months. If you engage in frequent business cash advance transactions, include merchant processing statements to give a clear picture of your credit card sales volume.
  3. Offers- You'll receive tailored offers allowing you to compare options easily. Ensure you understand all the details, including advance amount, factor rate, and the set percentage of future credit card sales designated for repayment.
  4. Select an Offer – After choosing the most suitable offer, double-check the agreement and related state disclosures, making sure they reflect what was originally proposed – particularly noting the method of repayment and any penalties.
  5. Execute agreement and Supply Closing Stips- Verification typically involves submitting a driver's license and a voided check. Once these are supplied along with the signed agreement, the process moves forward to the next phase.
  6. Final Underwriting- The funder carries out the last checks, which might include verifying your bank details, before they finalize the approval and initiate the transfer of funds.
  7. Funding- With final approval granted, a funding call may be the last step before the capital—often delivered via wire or ACH—is released to you.

Business Payday Loan Alternatives

Short Terms Business Loans

Short term business loans are term loans with fixed rates, terms and payments. A short- term loan is easier to get approved for because of shorter duration to repay. Loan terms are short in duration to repay to reduce the risk to the lender.

  • Interest rates starting at 12%
  • Terms ranging from 6 to 36 months
  • Payments that are monthly, bi-monthly, weekly or in some cases daily
  • Approvals in as little as 1 -day

Business Line of Credit

A Business line of credit, is a revolving credit line. It can come in handy as you can draw on command without talking to the lender. Business lines have low interest rates and you only pay interest on your outstanding balance.

  • Good to excellent credit required
  • Flexible credit facility with a draw feature
  • Rates starting at 1% per month simple interest
  • Revolving credit line, only paying interest on outstanding balance

Business Credit Cards

  • Credit cards are revolving line of credit whereby a bank issues a card that can be used on the fly for making purchases or payments.
  • 0% into interest rates up to 29,99%
  • Revolving credit line
  • Issued a card for use
  • Comes with cardholder perks

Frequently Asked Questions

How can I get a Small Business Payday loan the next business day?

Due to the fact that you are only required to provide a 1-page application and bank statements and/or merchant statements, approval to funding can be in as little as 1 day for business payday loans.

Can I get Small Business Payday loans with bad credit?

Bad credit is considered for business payday loans also known as business cash advance.

Can I get a Business Payday loan for my business as a Start-up?

Startup business loans are NOT a possibility with payday business loans. You must have a minimum of 6 months business banking with revenue greater than $15,000 per month to qualify.

Jacques Famy Jr

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