What is a Merchant Cash Advance (MCA)?
Merchant Cash Advance or MCA (also now as a Future Receivables Purchase and Sale Agreement) is an advance of a lump sum of money to a company in exchange for a fixed set holdback percentage of daily future credit card sales and/or overall sales at a discount. The business is required to repay the advance until a greater amount (purchased amount) than the specified amount (purchase price) is paid in full. This process offers a unique payment process by offering flexible payments (holdback percentage of a credit card or overall sales) that fluctuate with sales revenue in the future. The difference between the large sum upfront and the specified amount (purchase price) or payback amount is called the “factor rate”. (this is not an APR). Merchant Cash Advances are not based on principal & interest rates (APR), rather it’s a flat cost discount or factor cost. There is no early payment discount to repay the advance in full early unless specifically stated in your merchant cash advance agreement (check your repayment terms in your agreement). An MCA is not a loan against daily credit card sales or overall sales because it is not a short-term loan, but an advance funding by selling your future sales and/or credit card transactions at a discount. It is correct that merchant cash advances have no personal guarantee to the business owner, rather a business owner’s performance guarantee. This product is a fast funding method for a company that needs money fast to support cash flow.
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Merchant Cash Advance (MCA): Product Overview
Rate: 1.10% up to 1.45% Factor Rate (This is not an interest rate/APR like bank loans or other business loans)
Repayment terms: No term limits estimated payback periods are 6 to 18 months
Fees: Typically 1% to 3% Origination Fees
Payment Terms: Set percentage of future card sales volumes as payment.
Business Credit Standards: Both business owner personal and business credit is evaluated by MCA providers. All business credit types from a poor credit to good credit to Excellent credit is considered. Not a business credit score-driven, so personal credit bureaus can show poor credit.
Documents: One-page Application, credit card payment processing statements, business bank statements
Merchant advances are a great way to receive cash flow fast, without needing to fuss around with a bank loan or slow lenders. Furthermore, a business loan is a tough code to crack without the right personal or business credit score. The small business loan process can be tedious and time-consuming for SMBs that need to receive funds quickly. Everyone knows that a bank loan is not easy to get! With merchant cash advance providers like AdvancePoint Capital, you’re able to speed up the process with alternative finance options that work for you.
We’re here to partner with your small business and help you navigate the challenging financial roadmap. Choosing between the various MCA providers can be a nightmare. However, we’re all about empowering you with premiere merchant cash advance services.
How Does a Merchant Cash Advance Work with Credit Card Sales?
Merchant cash advance companies provide small businesses a lump sum payment of money upfront by a business owner selling a small businesses’ future transactions at a discount and have to pay back a greater amount called the specified amount. Repayment is based on a fixed set percentage of future card sales collected directly from the small business merchant processor or a “lockbox” attached to the merchant processing every time the small business “batches out” the credit card transactions until the payback (specified amount) obligation is met. The estimated time to repay is typical may be set to 6 to 18 months depending on the risk of the file but could be longer as there are no limits to the repayment period as the repayment is based on credit card transactions in the future and comes directly out of the business bank account.
This repayment method flexible and works with you instead of against you. It’s attached to the business’s future card payments, making it perfect for most those who need money fast but flexible programs due to revenue fluctuations. The future repayments fluctuate until the advance terms have been met, so the payment taken out depends on your company revenue. The cost, also known as the factor rate ranges by risk from 1.10% to 1.50% percent of the purchase price. So, if you have slow revenue, don’t worry. Companies don’t need to pay a fixed payment that day and instead can rest easy with an MCA knowing that it will deduct a fixed percentage. However, because this product does not have a fixed term as there is no certain time frame to repay the advance where your small business must pay it back. MCA’s are not loans against credit card sales or a line of credit, but it is the funding of revenue, so the correct term would be merchant advance. Therefore, it is incorrect to use the phrase “Merchant Cash Advance Loan” because it’s not a loan or calls a funder a lender.
Due to this unique repayment process, approval qualifications through AdvancePoint Capital are easier than traditional business loan financing.
To Qualify for MCAs, a Small Business Owner Must Have:
- Acceptable volume of your daily credit card sales from the merchant account.
- Open and active personal credit with payment history
- Acceptable Business bank statements. This type of business funding allows for lower average daily credit card balances in your business bank statements and also allows for some Overdrafts/NSFs in your statements.
MCAs Eligibility Requirements:
- A simple one-page application
- Merchant Processing Statements from the merchant account.
- Business Bank Statements showing consistent cash flow.
- NO TAX RETURNS REQUIRED!
- All business credit types considered from excellent to poor
- A minimum of 6 months in Business
- NO START-UP BUSINESSES
Who Can Qualify for a Merchant Cash Advance (MCA)?
A merchant cash advance is far easier to qualify for than traditional bank business loans or lines of credit. Even though the terms for approval are more lenient, there are still restrictions on this type of funding. The company must have credit card sales and accept credit cards from customers regularly. This type of advance is perfect for small business owners who heavily rely on credit card transactions or debit card sales for their deposits. This type of company is what lenders are looking for because this reduces their risk associated with payment history in the long and short-term.
Common organizations that utilize this financing option for working capital are restaurants, auto service centers, dry cleaners, online e-commerce stores, and other retail stores that rely on card sales and wish to have flexible repayments. Seasonal companies also use this type of business financing option because they have fluctuating sales. An MCA provider offers to cash advance a merchant money the merchant feels will not negatively impact monthly cash flow.
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What Is a Business Cash Advance?
How Does This Type of Advance Work?
Business Cash Advances(BCA), also known as a Purchase of Sales Agreements, advance a fixed single installment of capital with a discounted purchase price, also known as a specified amount, to payback. That cost is a “factor rate” or fixed cost and not principal and interest (APR) like a small business loan. The advance is repaid by taking a fixed percentage of sales based on future overall total sales, which is different than a merchant cash advance, which takes a fraction of future credit card sales. Pay is collected by a fixed daily or weekly payment deducted from a business bank account, which is based on the fixed amount of future total sales.
Reconciliation of pay can occur after every month if the fixed payments taken are more than the set fixed future percentage of sales in the agreement. A refund back to the merchant can occur if an overpayment is made month to month while a payback balance exists. This repayment continues until the payback amount is paid back in full. Therefore, there is no fixed repayment period with advances as the fixed payback percentage is attached to sales in the future. This financial process mitigates credit risk by allowing the monthly collection of payments to be adjusted, unlike a short-term loan. The key is the payment process. This is not a loan or lines of credit, but an advance, so it is incorrect to use the phrase “BCA Loans” or call a funder a lender.
BCA companies estimated repayment period associated credit with expectations of being typically repaid in 6 to 18 months, but again, it may be longer or shorter depending on future sales as the time period is not set in stone like a short-term small business loan.
Product OverviewBCA Rates: 1.10% up to 1.45% Factor Rate (This is not an interest rate/APR like bank loans or other business loans) Terms: No fixed repayment period. Repaid based on sales in the future Fees: Typically 1% to 3% Origination Fees Payment terms: Fixed daily or weekly automatic clearing house (ACH) payments are weekly or per day Monday-Friday deducted from the account for the payment. Credit Standards: All credit types from Bad Credit to Excellent are considered. Not FICO score driven. One or more credit bureaus is considered in the review. Time in business: minimum of 6 months Required Documents: One-page Application, business bank statements
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Business Cash Advance
Who Can Qualify for a Small Business Cash Advance?
BCAs, like MCAs, are far easier to qualify for than traditional bank business loans. Even though it’s easier to get a business advance, there may still be restrictions on this type of cash advance. This type of advance is another business financing option perfect for a business owner who doesn’t rely on credit cards or debit card sales for their sales deposits.
Common companies that may utilize this funding option are retail operations, manufacturers, business professional services, wholesalers, distributors, restaurants, auto service centers, dry cleaners, online e-commerce stores, and other retail stores.
BCA: Pros and Cons
- Rapid finance option for cash flow problems
- Allows bad credit. All credit is considered but Substandard, Mid-Prime to Subprime Credit are all acceptable. Other products, like term loans, require much higher credit standards than MCA or BCA.
- Much higher approval rates than traditional financing
- May not require hardly any business credit
- No personal collateral required.
- Flexible payment attached to a percentage of sales in the future with no term limit to repayment terms.
- Approval may be given even if you have a low monthly or annual revenue.
- No financial statements are required (Tax Returns, Balance Sheets, or Profit & Loss)
- Concerns about business bank statement issues, such as low daily balances and/or Overdrafts or NSF’s, can still be approved.
- Only a minimum of 6 months in business required. You don’t need to wait for 3 years in operation.
- MCAs are an alternative when you can’t get approved for lines of credit
- If you have the need for speed, this may be the financing for you. When you need money faster than the traditional process allows, a BCA gives you quick access to receive funds in less than 24 hours.
- Higher costs with MCAs than SBA loans, business term loans and business lines of credit.
- Time to repay, MCAs paid back in months not years.
- No fixed payment
Document Requirements for Approval: How to Apply
- 1 Page Application
- Business Bank Account Statements
- Merchant Account Processing Statements if credit cards are accepted as a form of payment from customers. (not required)
Most Common Uses and Needs of Proceeds From Merchant or Business Cash Advances
- Access Working Capital
- Cash Flow shortages
- New or Used Equipment
- Advertising or Marketing
- Legal issues and licensing
- New Projects
Frequently Asked Questions (FAQ)
Are Merchant Cash Advances/Business Cash Advances a good idea for small business owners? Is a Merchant Cash Advance Right for Your Business?
If a business does not qualify for more traditional small business loan products, both MCAs and BCAs provide access to capital that otherwise would not be available to companies, offering a way to leverage credit cards as receivables and pay daily or weekly through these purchases by taking out a fixed percentage. With a factor rate of around 1.10% up to 1.45% (this is not an interest rate or APR). It may be a sound option for those looking for capital fast. Not only a Merchant Cash Advance right for your business, but it may also be your only option other than not getting financing for your business at all due to business credit bureaus requirements for other financing options like short-term loans.
MCA providers are not all created equally. Always request detailed disclosures from merchant cash advance companies when receiving offers that cover all terms and conditions during the application process. Your merchant cash advance provider can have differing qualification standards as well.
Cash Advances are not loans, but many people still call Merchant Cash Advances and Business Cash Advances “loans”, “MCA loans”, “BCA loan” or “credit card sales loans”, even though they are not business loans. There is no such thing as a merchant loan advance. MCA’s and BCA’s are a method of merchant financing. Merchant cash advance lenders are really business funder and not Business Lender. The proper terminology when you advance a merchant is the funder, not a lender. Also, when you advance a merchant cash the advance does not charge interest, it’s considered factor cost or flat-rate financing.
What happens if you default on a Merchant Cash Advance (MCA)? If I close and I no longer have sales, am I responsible for the remaining balance of a Merchant Cash Advance?
If you no longer have sales and your business is closed, you are not responsible for paying back any remaining balance of a business or merchant cash advance. If the company were ever to re-open and sales resume the company would be responsible to complete repayment. there is no personal guarantee, just a business performance guarantee. If there is some type of fraud detect then the funding company does have rights reserved to recoup capital funded.
Yes, a Merchant Cash Advance is legal and has been tested and passed various courts scrutiny in litigation.
This answer varies greatly, but various lenders and funders say the average commission to advance a merchant cash is 8pts. on the funded amount.
A new company must have at least 6 months of revenue to qualify. Startup businesses do not qualify. Without established revenue funders cannot determine whether to cash advance a merchant or not.
Marketplace business providers, some online business lenders, and loan brokers offer Merchant Cash Advance. Banks have tighter qualifications than online lenders and therefore do not offer Merchant Cash Advance or BCA financing options. Marketplace loan providers, online business lenders, and business brokers have better approval rates with less stringent qualifications, but charge higher rates and shorter payment terms than traditional banks because they take on greater risks.
The short answer is NO. MCA providers do not consider PPP loans in the application process.
AdvancePoint Capital Offers Merchant Cash Advance
If you want to apply for a Merchant Cash Advance, AdvancePoint Capital can help as we are an MCA provider. We offer a wide variety of trusted resources and alternative small business funding options for businesses throughout the country. We’ve helped countless business owners make sure they get the funding options they need with a variety of financing options, whether it’s through an MCA, BCA, Small Business Line of Credit, Small Business Loan, Long Term Business Loan, or various other business term loan.
Whether you’re worried about annual revenue, time in business, or credit history — AdvancePoint Capital can help. Merchant cash advances are a great way to receive cash flow fast, without needing to fuss around with banks or slow lenders. Furthermore, business loans are tough codes to crack without the right credit score. The system can be tedious and eventually devastating for businesses that need cash advances quickly. With AdvancePoint Capital, you’re able to speed up the process with alternative finance resources, options, and processes — and learn all the information we provide you to make good decisions. As an MCA provider, we’re here to partner with you and help you navigate the challenging financial road map.
Choosing between the various merchant cash advance lenders can be a nightmare, especially with factor rate options that may have wide ranges. However, we’re all about empowering businesses like yours with premiere merchant cash advance services to fulfill your small business financing needs. For businesses looking for cash advances quickly and with simple application processes — AdvancePoint has you covered. We’ve been a trusted finance marketplace provider for countless business owners. With no term loan limit cash advances that you can receive sometimes in as little as 24 hours regardless of your credit score — there’s simply no better method available.
Check out How to Find the Best Merchant Cash Advance provider to weigh all the benefits and evaluate the decision to get funding.