Small business merchant cash advances (MCA), like bank loans, provide money for your company’s working capital needs. This cash comes in exchange for a percentage of your company’s future credit card or debit card sales, or a combination of both. Merchant loans will advance your business the money you need now, and will then deduct a certain percentage of money from your daily credit card revenue until the money you borrowed – plus transaction fees – is paid back in full. Most times these daily payments are deducted directly from your business via the credit card terminal.
What Is A Small Business Merchant Cash Advance?
This short-term financing has terms ranging from six to 18 months. In addition, the finance charges for small business merchant cash advances tend to be higher than the interest rates for traditional bank loans. Although this alternative business financing option is more expensive than some business loans, there are many advantages to consider:
- It isn’t a true loan. A merchant cash advance is not really a loan. You are instead selling your future credit/debit receivables. This means credit is less important.
- You can be approved with poor credit. If you have poor credit or a few blemishes on your credit history, you can still be approved for a merchant loan. That makes alternative financing a great option for a bad credit business loan.
- You don’t need physical collateral to be approved. In many traditional business loans, lenders
tend to look for potential borrowers who:
- Have the capacity to repay;
- Have good character;
- Have good loan circumstances;
- Have existing business capital; and, most importantly,
- Have collateral.
Since most small business owners don’t have collateral early on, traditional forms of financing can be harder to obtain. A small business merchant cash advance only requires you to have at least $1,500 in MasterCard® and Visa® card sales each month. - There is less risk to you, the business owner. When you take out a merchant cash advance, you share the risk with the cash advance company. The only security you put up as collateral is your credit card sales, not your home, business, automobile, etc.
- Generally, there are high approval rates. Merchant loans are based on the performance of the businesses credit card sales, not credit, making it easier to obtain.
- There is quick processing and easy access to cash. The application process is straightforward from start to finish, often only requiring three to six months of credit card statements, tax returns, and lease agreements. Since there is very little paperwork to process, the turnaround times are fast and you can often obtain funds within a week of submitting the application and requested documentation.
Drawbacks in Using a Merchant Cash Advance
Depending on your business needs, a merchant cash advance may not be an appropriate source of funding. If you are in need of quick cash flow, obtaining a merchant cash advance is ideal. If you are in need of equipment and don’t have the cash for an outright purchase, you may be better off leasing the equipment. Merchant loans aren’t ideal for consolidation of your business’ debts since the costs of borrowing can be somewhat high and the advance is paid back in a relatively short period of time.
How to Determine If a Small Business Merchant Cash Advance Is Right for Your Business
The best way to figure out if a merchant cash advance is the right thing for your business is to ask an expert. This is where AmONE can help you. Call us toll-free at 888-401-0330 to speak with one of our knowledgeable financial search specialists. Our free service uses the experience of business owners like you to identify highly rated business financing options currently available. To get started, you can either complete our small business loan form or call us. There’s no cost and no obligation to you.
