When you’re short on both time and money, flexible, and convenient funding in the form of a merchant cash advance (MCA) could be a great option for your business. Many small businesses turn to merchant cash advances when they’re looking for an alternative commercial financing solution that can provide them with working capital when they need it most.
What Is A Merchant Cash Advance?
A merchant cash advance is a type of short-term alternative business financing that empowers small businesses by granting them fast access to working capital so they can meet their business needs. With an MCA, your small business leverages its future credit card receivables to get the working capital it needs.
Merchant cash advances are great because they allow your business greater flexibility in how your small business allocates its funding. Unlike traditional small business financing, merchant cash advances are a purchase and sale transaction. This allows your small business to use an MCA for pretty much any business expense: seasonal costs, business expansion, equipment repairs, cash flow gaps — the list goes on!
Not only are merchant cash advances more flexible, but they’re also a more lenient form of small business funding when it comes to pre-qualification criteria, making them a great option for newer businesses, businesses in need of a cash influx with little time, or those struggling with obtaining other types of funding due to lower credit scores or other qualifying factors.
How Does A Merchant Cash Advance Work?
With a merchant cash advance, funding works by giving businesses upfront access to a lump sum of cash in return for a percentage of their future credit card sales at a discounted price. This allows payments to be tailored to the flow of business sales. This is a great option for small businesses with high credit card sales.
Once you’ve received money from the funder, payments will start once your business starts making credit card sales. Payments are based on the business’ receivables so there is no fixed payment term. An estimated completion date is calculated based on the estimated time it will take the business to deliver the receivables (which will vary based on the business’ performance). These estimated completion dates typically range between 3 months up to 18 months, but this is only an estimate. The agreed-upon percentage of credit card sales will be remitted to the purchaser each day.
Remember, these payments are based on a percentage, which means if you’re going through a slow period, less money will be remitted to the purchaser. Conversely, more sales means a greater amount will be remitted to the purchaser.
When it comes to financing your MCA, amounts can start at $5,000 and range up to $500,000.
Is A Merchant Cash Advance Right for Your Business?
When deciding whether a merchant cash advance is right for your business, there are many factors to consider. Before taking on funding, be sure to consider the terms and eligibility, as well as your small business’ ability to make payments based on its credit sales.
Firstly, a small business that wants to apply for a merchant cash advance must have accounts receivable such as credit or debit card sales and invoices.
Cash advances are designed to help businesses get flexible, quick access to working capital. Cash advances provide flexibility because they allow for variable payments based on business receivables. Merchant cash advances are ideal for businesses that are seasonal, have high credit card sales, or lots of receivables and need fast access to working capital.
While merchant cash advances are generally easier to apply and qualify for, keep in mind they do carry variable payments.
Many small business funding companies use personal or business credit as a factor when looking at the small business’ application, but it’s not the only element used to determine eligibility.. Most alternative small business funders take into consideration the overall performance of your business by looking at business revenue, time in business, accounts receivable, and business credit history. This means your small business could still be eligible to qualify for a cash advance with bad credit. However, your small business’ credit score does come into play – a good score could mean better terms for your small business’ funding agreement.
Pros and Cons of a Merchant Cash Advance
Before determining if a merchant cash advance is the best financing option for your small business, it’s essential to know all the facts to make a well-informed decision that will benefit your business. To give you a more realistic understanding, we’ve gathered the biggest pros and cons of merchant cash advances below.
- Fast funding
- More lenient qualifications
- Can be used for any business use
- Simple application process
- Variable payments based on credit card sales
- Variable Payments
- Potentially smaller financing amounts
Application Requirements for a Merchant Cash Advance
When considering applying for an MCA for your small business, you’ll need to be aware of all of the required documentation. Depending on which alternative funder your small business decides to work with, some requirements may vary. Be sure to have the following business documents ready to submit:
- Business plan
- Financial statements
- A business banking account and routing number
- 3 months of bank statements
- 3 months of credit card processing statements
- Business license
- Tax returns
- A valid form of identification
- Other legal documents
After you apply, the potential funder will need to review credit card processing statements, business bank account statements, invoices, and other important documents during the approval process.
Applying for Financing
Once your small business has decided to apply for a merchant cash advance it will have to complete the application process. Applying for a merchant cash advance is fairly straightforward.
- Research alternative small business funders and choose which funder your small business would like to work with.
- Submit the application.
- For approval, the potential funding provider will need to review your business’s current financial situation.
- If approved, you’ll discuss all available options for financing with your funder.
- Review the prospective contract with your funder
- This will detail the terms of your financing.
- If any information is unclear, don’t be afraid to ask your provider to clarify.
- Discuss the timeline for receiving funds.
- This happens quickly. Your small business could receive funds in as little as one business day.
Obtaining a Merchant Cash Advance from Rapid Finance
Experience fast and flexible funding with a merchant cash advance from Rapid. Our merchant cash advance gives small businesses fast access to the working capital they need to supplement cash-flow gaps and facilitate short-term needs.
At Rapid Finance, applying for small business financing is fast and convenient. You can complete the application through our online portal in just a few minutes.
An easy application process
- Apply Online
- Click APPLY to be directed to our online portal. The application can be completed from a mobile, tablet, or computer device.
- Our team of trusted business advisors will carefully review your application.
- Get Funded
- If approved, we’ll send the funds to the business bank account you provided.
- Be on the lookout, this happens fast!
You only need 4 things to apply
- A valid form of identification
- Business bank account number and routing number for deposit
- Last three months of business bank statements
- Last three credit card processing statements
- Our merchant cash advance amounts start at $5k and range up to $500k
- Payments are calculated based on a percentage of the business’ credit card sales or other revenue receivables
Estimated Completion Date
- Payments are based on the business’s receivables so there is no fixed payment term
Applying for a merchant cash advance is fast, flexible, and convenient.
Merchant cash advances can provide fast funding solutions. They can provide small businesses the working capital they need quickly and easily to facilitate cash flow and a small business’ short-term needs. A merchant cash advance might be ideal if your business has high credit card sales, lots of receivables, or is operating seasonally.
Cash advances work when alternative funders give small businesses upfront access to a lump sum of cash in return for a portion of the small business’ future revenue receivables at a discounted price.
To be approved for an MCA, certain business criteria must be met. Important qualifying factors include that the business must accept credit card payments or have other receivables.
If you decide that an MCA is the best small business financing solution for you, be sure to use this guide as a reference as you navigate your financing. Remember, it’s crucial to understand the application process, payments, business requirements, necessary documents, and all other important components before applying.