Merchant Cash Advance

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Our merchant cash advance consolidation loans are on-demand extension of your cash flow.

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Merchant Cash Advance

A merchant cash advance (MCAs) is a type of business funding that is structured very similar to a loan but operating outside of banks and government funds. Merchant Cash Advance is basically purchase of future receivables at a buy rate and paid back over a set period of time, often several months. Whereas a loan is money lent to a borrower with applied interest rate and can be paid back over a longer period with an agreed  terms, often several years.

MCAs are often done  online through a short application  with  ACH wired funds, allowing businesses to access the money in a matter of days, sometimes even hours. The rates are also significantly higher than a loan due to the speed at which funds are provided and the acceptance of low credit scores and poorly performing businesses. While other non-bank online lenders can also provide fast funding, they will still be able to provide lower rates because they only serve strong businesses.

Merchant Cash Advance: We help give you the results you need!

Fast Results

It takes just 5 minutes to fill out your application and just a few hours to get offers!

Flexible Terms

We help you compare your options with ease and always work to get you the most favorable terms.

Expert Support

Our advisors will make sure that the product you have chosen will suit your business needs best.

How to qualify for a merchant cash advance

MCA  loans are a great way to unlock cashflow . We’re happy to help see if you qualify for this product.

Here’s what you’ll need to qualify:

  • 4+ months in business
  • $110K+ annual revenue
  • 550+ credit score
  • Majority ownership of the business
  • Minimum 1 year in business
  • Business bank account

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How A Merchant Cash Advance Works

The MCA industry has grown considerably over the past few years and many lenders have branched off to offer their own terms of funding. In general, there are areas that remain similar no matter what funder you do business with.

Advance Amount

Funding amounts vary with small funders offering as little as $2,000 and major funders offering up to $2,000,000.

Payment Frequency

Repayment debits will occur daily or weekly depending on the funder and the terms of agreement.

Buy Rates

Strong businesses in search of fast cash can see buy rates as low as 1.14, but riskier businesses will be looking at around 1.40, sometimes even up to 1.60.

Time To Funding

Cash advances are known for being fast. On average, businesses can get funded in about two days, sometimes less. Other times money can take five to seven days to process for larger amounts of funding.

How to apply for a merchant cash advance

Those who apply for an MCA will typically be one of two things (or both): in need of fast access to capital or unable to qualify for a bank loan. Businesses rejected by banks will have little or no collateral, limited time in business, or a low credit score. Merchant cash advance providers tend to accept credit scores as low as 550, even 520 in some cases, and don’t require any collateral.

Small businesses that do sales through credit cards can find merchant cash advances especially useful. A funder will purchase future receivables, provide funding, then withdraw repayment as a percentage of credit card sales so that the amount withdrawn adjusts with the business’s cash flow.

To apply for funding, you’ll need:

  • 4 months bank statements
  • Business bank account
  • Majority ownership of the business
  • Minimum 1 year in business
  • Minimum $100,000 in annual gross sales
  • Minimum credit score 550

Merchant cash advances are short-term financing tool that can help with…

  • Cash flow problems
  • Expansion construction
  • Inventory purchases
  • Debt consolidation
  • Unexpected emergencies
  • Marketing
  • Equipment upgrades
  • Seasonal rushes
  • Staff hires
  • And more!

One thing to keep in mind when utilizing cash advances is that they are short, and whatever you are putting the working capital towards should ideally yield quick returns.

History of the merchant cash advance industry

In a way, the merchant cash advance industry is new, but at the same time it isn’t. Early forms of alternative lending can be traced back to the 1990s, but the industry didn’t really take off until the 2008 recession. After the market took a dive, banks were legally required to be more strict with loan requirements, meaning businesses with low credit scores or weak revenue would be rejected. The digital revolution was also extending to the financial world, and the slow pace and tedious paperwork of bank loan applications led many business owners to search for an alternative, a funding option that could provide them with fast cash at the speed of opportunity.

The industry also was able to serve an underserved market. Business owners barred from bank loans had only loan sharks to turn to until merchant cash advances gained in popularity. Now, since low credit is accepted, those businesses can get the capital they need to grow and run their businesses, something they weren’t able to do before.

Not all of the history of the merchant cash advance industry is positive. While the rates are high, there are greedy funders who capitalize off of these margins and intentionally over leverage businesses for their own profit, causing the business to take on unmanageable debt or file for bankruptcy. While most funders have good intentions and would face negative effects if the business defaulted on payments to them, the sad truth is that those funders are out there. One such scam happened in the Payday loan business, where individuals were lent money with sky high rates, short terms and hidden legal footnotes, intentionally designed to trap borrowers into paying them seemingly forever.

That being said, as the industry evolves more laws are being put into place to protect both the lender and the borrower.

Future of the Merchant Cash Advance

The industry has been around for over ten years, with many changes on the horizon. Alternative lending is made up of direct funders, brokers and merchants all working to fund merchants. As of 2019, the MCA industry has provided small to large businesses with over $50 billion in working capital.

As FinTech evolves, new programs for funding are being created. Online lending can structure unique programs that traditional, old-school banks can’t design. One example is reverse consolidation; instead of consolidating debts by buying them out, the funder deposits enough money each month for the merchant to meet all of their debt payments, while taking out a smaller sum of their own for repayment, allowing the merchant to avoid restructuring their debt.

Other funders are expanding their financial products to partner with banks and credit card companies, offering lines of credit, actual loans, credit cards and more.

More laws are coming into play to protect both the funder and the borrower. Both parties are subject to scams and are seeking laws to protect them in those situations, which in turn can restrict those who are trying to help. One example is COJs – confession of judgement – a ruling that gives a funder permission to freeze and seize a merchant’s bank account if they default on payment. Many states are banning this as it can be harmful to the merchant and improperly used, while some funders complain because this is the only form of security they have to get their money back if a borrower defaults.

Breaking Down the Costs

Cost of borrowing is the major hesitation for most businesses owners researching a merchant cash advance. In some cases, businesses can pay off early and save additional money on the factor rate, but that isn’t always the case.

For Example:

Say you’re advanced $75K with a factor rate of 1.28.

$75K multiplied by 1.28 is $96,000, which is what you’ll be repaying through your daily credit card transactions.

It might look like you’re only paying a 28% interest rate, but the true cost of the merchant cash advance is determined by its APR.

If your funder will be debiting 15% of your future credit card sales and you’re estimating $100K a month in credit card transactions, you’d repay that advance in 192 days with daily payments of $500.

That’s an APR of 97.66%—quite a bit higher than it originally looked. The total cost of borrowing $75,000 is $21,000, which may or may not be worth it depending on what the money is being used for.

Pros and cons

While a merchant cash advance is one of the fastest, easiest to apply for business financing options, it comes at a heft cost. Some merchants can handle the high rates because they need fast cash to turn large profits. Other businesses take on more than they can handle and find themselves in cash advance quicksand, taking on more debt to cover their existing debt.

Most MCAs provide a lump sum of cash in exchange for a percentage of daily credit card sales. Typically, the MCA is paid back through ACH (Automated Clearing House) withdrawals. The merchant cash advance provider accesses your business bank account or credit card processor, creating a seamless process of depositing with withdrawing.

Pros

Quick access to capital

Easy application process

Easy approval process

Bad credit is accepted

Can be used for many business endeavors

Cons

Higher rates than traditional loans

Daily debits reduces cash flow

High APRs

Loose federal oversight

No early repayment savings

Merchant Cash Advance Programs Offered

The merchant cash advance industry offers many programs that can be structured to help a merchant’s specific financial situation. For some businesses, fixed daily payments are too much too handle and weekly payments are better. Other businesses don’t need the total sum upfront, but also don’t want a line of credit. Here are the most common merchant cash advance programs offered, but not all of them.

Standard cash advance – A standard cash advance is what is described above: a lump sum is deposited into a business’s bank account with a factor rate or buy rate added on, and the business pays back that amount through a fixed percentage of their daily or weekly credit card sales, typically lasting three to 18 months.

Buyouts and consolidation – A buyout is very similar to a regular cash advance, but the money is used to consolidate existing debts. Those other lenders and funders are bought out so now the merchant only has one payment, and often nets additional working capital to put towards continuous business growth. In the merchant cash advance industry, funders can often consolidate up to five or even seven other debts a merchant has

Reverse consolidation – A reverse consolidation also helps a business owner pay off their other debts when they get to be too many, but unlike a standard consolidation, a reverse does not buy them out. A reverse consolidation deposits enough money for the merchant to make their debt payments every month, while the funder also takes back a small sum for their own repayment. As the additional advances drop off, the deposits shrink to match the necessary money needed for repayment, until only the final funder is left. This way, the merchant doesn’t have to restructure or refinance their debt and they get the help they need to pay it off over a longer period of time.

Installment funding – In some cases, the merchant does not want all of the funding upfront, but they don’t want to take out additional funding later. With installment funding, the merchant receives half of the money up front, with two smaller installments of 25% being deposited later on. This allows the merchant to have several boosts in cash flow and is less risk for the funder to put all of their money out there at once should payments default.

Credit splits – Credit card splits are often done when a merchant does most of its business through credit card transactions and may or may not involve a lockbox processor. A lockbox processor is used when the merchants’ credit cards are not already aligned to be used with the funders bank. With credit card splits, the money debited for repayment matches a fixed percentage of credit card sales, so if the merchant has a slow month, their debt repayment will decrease to match.

And others!

Merchant cash advance providers are always coming up with new programs to help merchants get the funding they need to grow in a way that matches their cash flow. This is especially true for seasonal businesses.

If your business needs immediate access to working capital and can handle the high rates, then a merchant cash advance might be the right program for you! If the high rates seem like too much, your best option would be to raise your credit score and qualify for loans offering lower interest rates.

Got some questions?

With an MCA, it’s not an actual loan but a cash advance based on the credit card sales deposited into a business’ merchant account.

Applying for one is rather simple. Once approved, you access your funds within 24 hours.

Once you receive credit card sales, you can apply for an MCA. You’ll need to provide bank statements from your business and credit card statements as well. 

You’ll obtain your advance which is usually directed into your account. After that you’re set to go. Automatic repayments will occur so be sure the money is in the account when the time comes. 

In some cases, yes, debt isn’t always a bad thing. In larger projects, debt is used for growth. Taking it on and paying it off, debt is needed to help build your credit score which allows you to get better interest rates on any loans you take out.

Fast payments and easy qualifications are popular reasons for why many business owners choose MCA’s as their kind of financing.

Make sure to consider that they do come with high fees and lack of business control as well. 

The cost of an MCA depends on the length of your advance and the factor rate on it. 

The price will be discussed when coming to the term agreements.

All it takes is 5 minutes of your time. Fill out our online application or give us a call and speak to one of our representatives who can help guide you through it. 

Credit score, length in business, and monthly revenue are all factors considered when deciding your application status.

Meeting minimal requirements still gives you a likely chance. 

Take an overall look at your business and ask yourself: is it in good standing? Most lenders want to provide you with the best options possible. In order to do that, they take a look at the health of your business. 

A good credit score is important but it is not the major key to making or breaking your approval rate for a line of credit.

A helpful tip: be sure to make your minimum payments on time. Try and pay more than the minimum  when possible to help pay off your loan sooner and keep your account in good standing. 

 

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