What is a Merchant Cash Advance (MCA)?
Merchant Cash Advances or MCA"s (also now as a Future Receivables Purchase and Sale Agreement) is an advances of a lump sum of money to a company in exchange for a fixed greater amount (purchased amount) than the specified amount (purchase price). The merchant cash advance repayment process requires the business to repay the merchant cash advance company by a set holdback percentage of daily future credit card sales and/or overall future sales at a discount.
This process offers a unique repayment process by offering flexible payments (holdback percentage of a credit card or overall sales) that fluctuate with sales revenue in the future. The cost of an MCA is a flat cost, known as a factor rate (this is not an APR or interest rate) which is the difference between the advance amount and the payback amount. Merchant cash advances are not based on principal & interest rates (APR) like traditional business loans, rather it’s a flat cost discount or factor cost. There is no early payment discount to repay a merchant cash advance in full early unless specifically stated in your merchant cash advance agreement (check your repayment terms in your agreement).
A merchant cash advance, even a bad credit merchant cash advance is not like traditional bank loans because it's advance funding by selling your future sales and/or future credit card receipts at a discount. It is correct that merchant cash advances have no personal guarantee to the business owner, but 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: Product Overview
- Merchant cash advance rates: 1.10% up to 1.45% Factor Rate (This is not an interest rate/APR like bank loans or other traditional small 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 owners' personal credit score and business credit are evaluated by MCA providers. All business credit types from poor credit to good credit to Excellent credit are considered. Not a business credit score-driven, so personal credit bureaus can show poor credit.
- Documents: One-page Application, credit card payment processing statements, and business bank statements to get a merchant cash advance offer.
Merchant cash advances are an easy and fast way to get funding for your business compared to traditional loans or lines of credit. Traditional loans and lines of credit also have high credit requirements for both personal and business credit scores. 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 small business owners and help them navigate the challenging financial roadmap. Choosing between the various merchant cash advance providers can be a nightmare. However, we’re all about empowering small business owners with the in's and out's merchant cash advance services.
How Does a Merchant Cash Advance Work?
Merchant cash advance companies provide small businesses a lump sum payment of money upfront by a business owner selling a small business’s future transactions at a discount and have to pay back a greater amount called the specified amount. Repayment of a merchant cash advance is a collection of a set percentage of future credit card processing batches. 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 bank account.
Because the repayment process is attached to the business’s future credit card processing, this method makes it perfect for most of those who need money fast but flexible programs due to revenue fluctuations. 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 a merchant cash advance knowing that it will deduct a fixed percentage.
Another piece of good news about the repayment of a merchant cash advance is there is no set term to repay because of the repayment method. Merchant cash advances 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 term “Loan” because it’s not a loan or call a merchant cash advance company a lender, they are a funder even as bad credit cash advance direct lenders.
To Qualify for a Merchant Cash Advance, a Small Business Owner Must Have:
- The business must process credit cards from customers on a regular basis. (Acceptable volume of your daily credit card sales from the merchant account.)
- Open and active personal credit with payment history
- Operating Business bank statements.
Merchant Cash Advance Eligibility Requirements
- A simple one-page application
- Merchant Processing Statements from the merchant account.
- Business Bank Statements showing consistent cash flow.
- NO TAX RETURNS ARE REQUIRED!
- Business owners' credit is evaluated but can be anything from excellent to bad credit.
- A minimum of 6 months in Business
- NO START-UP BUSINESSES
Who Can Qualify for Merchant Cash Advances (MCA)?
The good news is that a merchant cash advance is much easier to qualify for compared to other traditional loans and lines of credit. But there are still qualifications for this type of funding – for example, an applying business must have credit card sales and regularly accept credit cards from customers.
Merchant cash advances are a perfect option for small businesses relying primarily on high credit card sales and debit card sales. Merchant cash advance funders also prefer small businesses with these qualities because it reduces their risk with funding. Additionally, a Merchant cash advance funder may decide to cash advance merchant money if the merchant feels it will not negatively impact the cash flow.
Many small business owners rely on this type of funding for working capital and flexible repayments:
- Restaurants
- Auto service centers
- Dry cleaners
- E-commerce stores
- Retail stores
- Seasonal companies
- Any business that relies on card sales
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What is a Business Cash Advance?
Business Cash Advance (BCA's), also known as Purchase of Sales Agreements, advance a lump sum with a discounted purchase price, also known as a specified amount, to pay back. That cost is a “factor rate” or fixed cost and not a principal and interest rate (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 sales. Pay is collected by fixed daily or weekly payments deducted from a business bank account, which is based on the fixed amount of future total sales.
Reconciliation of payments can occur after every month if the fixed payments taken are more than the set fixed future percentage of future business revenue 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 periods associated with 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.
Can I Qualify for Business Cash Advance with Bad Credit?
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 and may have bad credit. Anyone can qualify for a business cash advance even if they have low or bad credit.
Merchant Cash Advance: Pros and Cons
Pros
- Rapid finance option for cash flow problems
- Allows bad credit. The business credit profile is not a big factor. 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 is required.
- Flexible payment options 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 NSFs, can still be approved.
- Only a minimum of 6 months in business is required. You don’t need to wait for 3 years in operation.
- 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.
Cons
- Not a conventional loan.
- Higher costs with MCAs than SBA loans versus interest rate on business term loans and business lines of credit.
- Reports credit history to appropriate business credit bureaus.
- Time to repay, MCAs paid back in months not years.
Document Requirements for an MCA Approval
You will need the following documents in order to be qualified for a Merchant Cash Advance (MCA):
- 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)
Why do You Need a Merchant Cash Advance?
The most common uses of acquiring Merchant Cash Advance (MCA) can be:
- Access Working Capital
- Cash Flow shortages
- New or Used Equipment
- Expansion
- Emergencies
- Advertising or Marketing
- Legal issues and licensing
- New Projects
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Frequently Asked Questions (FAQs) about Merchant Cash Advances
Apply for a Merchant Cash Advance Today!
If you want to apply for a Merchant Cash Advance, AdvancePoint Capital is here to help. 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 a Business cash advance, Small Business Line of Credit, Small Business Loan, Long Term Business Loan, or various other business term loans.
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 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.
