Merchant Cash Advance: Quick Facts
Updated: Feb 12
Businesses that face difficult odds when applying for financing will be relieved to hear that qualifying for a merchant cash advance is generally much easier than qualifying for other forms of business funding. Whether your business has a poor credit score, has only been around for a short while, or you don’t have valuable assets to use as collateral - an MCA is still within your reach. Do you have a Debit & Credit Card Machine? No - click Here.
Important note: Merchant cash advances are a particularly useful funding option for small and medium businesses that conduct a large percentage of their transactions through debit and credit cards. So if, for example, you’re looking for restaurant loans, merchant advance funding would be a solution worth considering in the event of a financial rough spot.
Basic points to consider when applying for merchant cash advance loans:
1. What percentage of your business’s transactions are made by debit/credit card
2. How quickly you anticipate be able to repay the loan
Merchant Cash Advance: Quick Facts
Top Benefits of Merchant Cash Advances:
Very young businesses can qualify
Low credit scores may still qualify
Can be used for any business-related purpose
No need to worry about missing payments
Fast approval and quick access to funds
Which Industries are Best Suited for Merchant Cash Advance Loans?
Merchant cash advances are flexible with regards to the way they can be used as a financial solution across such a wide variety of industries. It doesn’t matter if you're looking for a dental clinic loan, a loan for trucking business, a construction company loan, or financing for any other industry- merchant advance funding can be the answer you’re looking for, regardless of which industry your business operates in.
A merchant cash advance is also extremely flexible in terms of its ability to be used for any business expense you need help covering. Your business may need help recovering after a disaster, or perhaps your industry’s slow season hit particularly hard this year, or maybe you need help with growing your auto repair business. Small business cash advances are useful for any kind of business-related expense.
Pros and Cons of Merchant Cash Advances
✔ Very easy to qualify
✔ Quick access to cash
✔ Can be used for any purpose
🗙 Higher interest rates
🗙 Shorter repayment periods
🗙 Irresponsible use can create cycle of debt
How Does a Merchant Cash Advance Work?
When it comes to small business cash advances, the truth is your credit score won’t be the only factor. In fact, sometimes loan providers won’t even consider your credit score if you’re applying for a merchant cash advance. What lenders will look at primarily is your monthly revenue and, more specifically, the number of credit and debit card transactions that your business shows every month.
After applying for and receiving a merchant cash advance, your business will then pay back the loan amount incrementally by automatically drawing a certain percentage of your future credit and debit card transactions. The repayment period for merchant advance funding depends on the percentage drawn from those card transactions as well as the initial loan amount, but can be as short as 4 months.
As opposed to a standard interest rate, cash advance loans include what is called a ‘factor rate’ that the initial merchant cash advance amount is multiplied by; the factor rate normally ranges somewhere between 1.14 and 1.48.
For example, if the loan business cash advance amount is €10,000, the amount owed back would range somewhere between €11,400 and €14,800. While that doesn’t sound so bad on the face of it, when you consider the repayment term and the percentage taken from each credit card transaction, it can translate into annual percentage rates for some small business cash advances that reach into the triple digits. That’s a reason to be careful when considering cash advance loans.
In general, business cash advances are a type of business funding solution that is conducted almost entirely online. That being the case, alternative lending platforms such as LoanGuru are the way to go if merchant advance funding is what you’re looking to obtain.
Don’t think a merchant cash advance loan is the right financing option for you?
Do you still have questions and want to speak with one of our representatives? Feel free to reach out to us and we’d be happy to provide the answers!