When you’re in need of merchant business funding, it’s important to understand the different options available to you, and their respective benefits. One of the easiest kinds of merchant business funding to obtain is a merchant cash advance, also known as an MCA business loan.
Provided that your business does significant revenue in debit or credit card sales, then a merchant cash advance can be a perfect option. It works similar to a loan, in that you get cash when you take out the merchant cash advance.
However, it’s not exactly a loan in the traditional or regulatory sense (leading to one of the benefits we’ll discuss below).
In addition, the repayment method is tied not to the calendar, but to your sales – the merchant cash advance and interest are repaid by automatic debits to your future debit and credit card sales. That aspect feeds into yet another benefit of merchant cash advances.
Below, we’ll discuss four of these primary benefits to merchant cash advances, and why they make such a good choice for many businesses in need of small business funding.
MCA Business Loans Have an Easy Application Process with Minimal Eligibility Requirements
Compared to traditional loans, MCA business loans are relatively easy to obtain. The application process for merchant cash advances doesn’t take long, with some online lenders having applications that borrowers can complete in 30 minutes or less.
Since merchant cash advances aren’t quite loans in the traditional sense, and don’t require collateral, there’s a lot less paperwork – even digital paperwork – that borrowers need to fill out.
In addition, because repayment is tied to sales, the eligibility requirements for a merchant cash advance are often lower than on short- or long-term loans.
At BizFly Funding, a leading alternative lender, for example, only 2 months in business, $8,000 in monthly revenue, and a credit score of 500 or greater are required to qualify for merchant cash advance service.
Merchant Cash Advances Offer Quick Access to Much-Needed Capital
Both of the above factors about merchant cash advances combine to offer an additional benefit: merchant cash advances are one of the fastest ways to obtain much-needed capital for your business.
With limited applications, minimal requirements, and no collateral required, it’s easy for lenders to evaluate and offer MCA business loans in a very short time frame.
Traditional bank loans can take days, weeks, or even months in some cases to obtain. By contrast, merchant cash advances can be provided in a matter of days – even the next business day in the case of the better online lenders.
When you’re running a small business, time is money, and your need for fast cash deserves to be met right away. Merchant cash advances are one of the quickest ways to meet that need.
Merchant Business Funding with No Impact on Your Credit Score
As alluded to earlier, merchant cash advances, despite also being known as MCA business loans, aren’t technically considered loans from a regulatory standpoint. This means they aren’t listed on your credit history, and won’t have an impact on your credit score.
Rather, merchant cash advance services are seen as a “sale” – you are selling future debit and credit card revenue at a discount to the lender.
In fact, if you use some or all of the funds from your merchant cash advance to pay off existing loans or debt, merchant cash advances can have a positive impact on your credit score – but that is entirely up to you and how you wish to deploy your merchant cash advance funds.
Merchant Cash Advances are Responsive to Sales and Less Stressful for Business Owners
The biggest benefit to many business owners – especially those struggling with existing debt payments – is that merchant cash advances are responsive to sales. Repayment of the merchant cash advance is not tied to a calendar-based schedule.
Traditional loans require regular repayment, regardless of the financial performance of your business, on a set schedule such as weekly or monthly.
This can make it hard for business owners to make the required repayments, especially if business is down, seasonal, or highly variable or cyclical in nature. By contrast, merchant cash advances are tied to sales.
If sales volume and revenue increases, the repayments on a particular day or week increase. If sales decrease, so do the repayments.
It’s only based on debit and credit card sales, so it’s always easy to make the required repayments, and they are handled automatically once the merchant cash advance service is setup.
This makes managing your debt via a merchant cash advance far less stressful for small business owners than with other kinds of small business funding products.
Merchant Cash Advances from BizFly Funding
If you are interested in a merchant cash advance, or any other kind of merchant business funding for your business, then consider BizFly Funding as your lender.
BizFly Funding offers a full range of small business funding options, including merchant cash advances, lines of credit, short- and long-term loans, debt consolidation loans, and more.
Frequently Asked Questions about Merchant Cash Advances
The amount your business can obtain from a merchant cash advance will vary depending on your financial situation, time in business, credit score, and chosen lender.
Some lenders have higher upper limits on their MCA business loan amounts than others, just like with most loans and financing products.
The amount for which you can qualify will also vary. BizFly Funding, for example, offers merchant cash advance services with an upper limit of $250,000.
Like any loan, you get the full amount from your merchant cash advance up-front as a lump sum, meaning you can access a considerable amount of capital via cash advances for business owners.
Merchant cash advances are completely legal in the US, in every state. They are a legitimate form of business funding, and a powerful tool in the toolbox of small business financing options that business owners can draw upon.
Cash advances for business owners offer numerous benefits, as well as a few drawbacks, as we’ve outlined in our guide above. In general, however, there’s no need to worry about legality.
Both banks/traditional lenders and alternative, non-bank lenders offer merchant cash advance services for businesses in all industries and of all sizes.
Merchant cash advances are an unsecured form of funding, meaning there is no collateral required in order to obtain them.
The primary cost comes from the interest paid, which in a merchant cash advance is known as a factor rate.
This tends to be higher in the case of a merchant cash advance than in a traditional loan, as the lender has no certainty about the time scale on which they will be repaid.
You’ll find merchant cash advance interest/factor rates on the order of 20 to 70% or more depending on your lender. BizFly Funding offers merchant cash advance services with interest rates between 24% and 49%.
The exact rate that you may qualify for depends on the size of the merchant cash advance, credit score, revenue, time in business, and other factors.
A merchant cash advance is not entirely dissimilar to a traditional loan. In both cases, you receive your money up-front, and pay it back, with interest, over time.
However, when it comes to merchant cash advances, the repayment is not based on a specified term or calendar date. Traditional loans are usually issued with a specific term to them – a year, 18 months, 5 years, whatever the case may be.
The repayments are divided up into equal installments, and must be repaid either daily, weekly, monthly, quarterly, or annually, depending on the loan agreement and type of loan.
Merchant cash advances, however, do not operate this way. Instead, they are repaid by debiting an agreed-upon percentage of credit and debit card sales. This means the repayment is based on the amount of sales, and not tied to a calendar date.
Greater sales volume means the MCA business loan is repaid faster, while lower sales make repayment slower. It is variable and dynamic, and not fixed in the way of a traditional loan repayment schedule.
Simply put, a merchant cash advance provides business owners with a lump sum of cash – the cash advance. In exchange, they repay the loan with interest.
Rather than repayments being governed by time and a calendar date, they are variable, directly tied to sales activity by the business.
As a form of merchant business funding, MCA business loans are repaid by debiting a percentage of debit and credit card sales transactions on an ongoing basis until the merchant cash advance is fully repaid with the required interest.
In essence, a business owner is pre-selling some of their sales revenue at a discount to the lender, who is then repaid on a time frame that is dynamic and variable, based on sales.