Your Guide to Merchant Cash Advances

If you’re looking for fast and flexible funding to meet a short-term need of capital, a merchant cash advance is one of the most popular options. With its quick approval process and easy credit requirements, an MCA is a convenient funding program for small business owners trying to grow their business or sustain cash flow temporarily.

Are you wondering if a merchant cash advance is right for your business? Our guide will take you through everything you need to know using the 5W1H approach: what, who, why, when, where, and how.

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is not a traditional loan in the sense that it does not involve debt. You are basically monetizing your receivables by selling them at a discount to the funder. An MCA is a great option for businesses that have fluctuating income, as it allows them to make payments based on their current cash flow.

An MCA is a type of financing provided to small businesses, in which a lump sum of money is advanced for a fixed percentage of future credit and debit card sales. The advance amount is determined by analyzing your business’s overall credit card sales, and you make regular payments based on a percentage of your daily or weekly sales. You agree on a percentage you’re comfortable with depending on the estimate of your monthly revenue. This will also vary based upon the estimated term of the offer you receive from the funder. The funder of your payment then arranges for payments to be made automatically from your credit card sales or company’s bank account until you’ve paid back the advance, plus the funding fee. This form of funding allows businesses to receive the cash they need upfront, rather than waiting for payment after goods and services are sold.

Who is a Merchant Cash Advance For?

MCAs can be a good option for businesses that need funding quickly, as they can often be approved and funded in as little as a few days. It’s best for small businesses that accept card payments from their customers. You only repay the loan as more cash flows into your business. 

A merchant cash advance is also a great option for companies that don’t have access to traditional forms of financing, such as collateral or a good credit rating. This type of funding is particularly useful for businesses with limited assets and no credit history who need working capital quickly.

Business owners can access funds based on their current sales and future projections, allowing them to invest in their business without having to wait for traditional financing.

Why Do I Need a Merchant Cash Advance?

With a merchant cash advance, businesses can access immediate funding and use it for virtually any purpose. An MCA is a great funding option if you are:

  • Looking to expand business operations
  • Trying to purchase new inventory or equipment
  • Dealing with seasonal issues
  • Taking on larger projects
  • Needing temporary cash flow help
  • Paying other debts due
  • In need of cash for unplanned expenses

The primary benefit of a merchant cash advance is its flexibility. Unlike traditional bank loans, a merchant cash advance does not require collateral, has no closing costs, and the repayment is flexible. MCAs tend to have faster approval times than traditional bank loans, so businesses can access the capital they need quickly without having to wait weeks or months for approval.

When Do I Apply for a Merchant Cash Advance?

When considering applying for a merchant cash advance, it’s important to understand when the best time is to take out the loan. There is no one-size-fits-all answer; it largely depends on your unique situation and needs, as well as the amount of capital needed and how quickly you need the funds. Generally speaking, it’s best to take out a merchant cash advance when you need quick access to large amounts of capital and have limited options for securing other types of financing. Additionally, merchant cash advances can be beneficial in times of rapid growth or when investments are needed to expand a business.

A merchant cash advance typically takes anywhere from 3 to 5 business days to process, depending on the circumstances of the financing. During this time, the lender will review your application and verify any financial documents they’ve requested. Once approved, funds are typically sent to your bank account within 1 business day. The repayment of a merchant cash advance is also relatively quick and straightforward. Usually, repayment will be automatically deducted from future credit card sales at predetermined intervals. This ensures that the loan is repaid quickly and efficiently, making it an attractive option for many businesses.

How Do I Get a Merchant Cash Advance?

To apply for a Merchant Cash Advance, businesses typically need to provide proof of their current revenue stream and an estimated future revenue projection. Additional information that may be required includes:

  • The nature and type of business being operated
  • The number of years the business has been operating
  • Financial statements from the past 12 months
  • Business tax returns and/or personal tax returns of the business owner
  • Personal guarantee of repayment by the business owner

Once all the documents have been submitted, lenders will then review them to determine if a business is eligible for a merchant cash advance. If approved, businesses can receive their loan in as little as one business day.

Where Do I get a Marchant Cash Advance?

Merchant cash advances are often acquired from alternative lenders and online financial institutions. Alternative lenders have different requirements compared to traditional banks, which may include a shorter repayment process and more lenient credit requirements. When selecting an alternative lender, businesses should look closely at the terms and conditions of the loan to ensure they are working with a reputable provider.

We know you have options when it comes to selecting an alternative lender for your merchant cash advance. We hope you’ll consider CapFront for your working capital needs. Our focus is on complete transparency with our clients, and our dedicated relationship managers are bonafide experts in business funding. Our term length ranges from 3 months to 2 years, we offer as low as a 1.09 factor rate, and you can be approved in as fast as 2 days.

Apply with CapFront and you can get the capital you need quickly, without hassle.