Merchant Cash Advance
QUICK FACTS AND REQUIREMENTS
Starting at 1.08x
Fixed or Variable
- 3 months in business
- Min. $120k annual sales
- 500+ FICO
- Any industry
Benefits & Drawbacks
Higher finance costs
What is a Merchant Cash Advance
A merchant cash advance (MCA) is not a loan but is a purchase agreement. The merchant (“seller”) is selling their future revenue at a discount to the merchant cash advance company (“buyer”).
Merchant cash advances diverge from traditional loans in a few technical ways. For instance, there is no interest rate as cash advance providers charge a one-time premium, calculated by multiplying a “factor rate” by the borrowing amount.
As part of the purchase agreement, MCA providers offer multiple ways to collect their money, traditionally it is usually a percentage of your credit and debit card sales or on a fixed payment plan.
How Does a Cash Advance Work?
A cash advance means you receive funding upfront, and the lending entity gets the purchase of future receivables. The advance amount may be anywhere from $5,000-$500,000 and can carry a reasonable factor rate.
For example, a factor rate of 1.15 at an approval amount of $10,000 the merchant cash advance provider will collect $11,500 ($10,000 x 1.15). Put simply, the fee is 15% of the borrowed amount. The initial funding may be available in as little as 24 hours, so businesses can quickly adapt to their changing needs.
Benefits of a Merchant Cash Advance
The most significant benefit of a cash advance is that you can get your money exactly when you need it. Beyond that, there are three key advantages to choosing a merchant cash advance:
- They are one of the easiest types of financing to qualify for. You can get a merchant cash advance with bad credit so this is a good option for businesses that have been denied for other traditional loans.
2. You can use the funds however you want. Merchant cash advance companies understand that you know your business better than anyone, so they let you decide how to use your money. Other types of loans might restrict how you can use the funding.
3. You do not need to use collateral to get a cash advance. Other loan types require that you put up some collateral. This could be your retirement savings, your personal property, or even your business itself. Later, banks can claim that they’re entitled to your property if there is any problem with the loan. With cash advances, there are no such worries.
Are There Different Types of Merchant Cash Advances?
There are a couple of common types of cash advances, which gives business owners a lot more flexibility in repayment. Businesses can choose the kind of advance that best suits their needs. The two main types are as follows:
- ACH Advance – ACH Advances can be fixed or variable, depending on the agreement and MCA provider. If the withdrawals are fixed, the provider will simply deduct the same amount of money each payment period. With variable ACH Advances your cash advance provider may periodically adjust your payments if you experience a decline in sales. If in doubt, ask your MCA provider their policy on payment adjustments before entering into an agreement with a fixed ACH payment.
2. Credit Card Split – This type of collection uses credit card processing reports only to determine the health of a business. Typically an agreed purchase percentage in the agreement stipulates that for every qualified credit or debit transaction processed, the purchase percentage will be applied. For example, if $100 is transacted and the purchase percentage is 15%, then $15 of the $100 will be collected by the MCA provider directly from the credit card processor. This option is great for businesses that rely heavily on credit or debit card sales and wish to monetize their sales trends without worrying about fixed payments.
Can I Qualify for a Merchant Cash Advance?
This is a non-traditional type of financing which was created as an innovative way to meet business needs. They are relatively easy to qualify for, mainly because you can get a cash advance with bad credit; the unrestricted nature of these advances and the lack of required collateral means that any business can qualify. The critical requirement has to do with a business’ current cash flow. As long as the company is bringing in enough money, advance funding should be available.
A lender may also want to see an active business checking account, and some general financial information. Small business owners should be willing to provide answers about how long they have been operating and what kind of revenue they achieve.
How Can I Get a Merchant Cash Advance?
Since your repayment is a factor of how much you borrow, it’s important to think about how much of your advance you can use right away. It’s also important to find a trustworthy MCA provider who is willing to negotiate when it comes to fees. AMP Advance is an extremely flexible alternative funder who will cater to your needs and provide the best deal possible. Apply today to see if your small business can qualify.