Loan Amount
Up to $500,000
Estimated Repayment Terms
3 - 18 months
Factor Rate
Starting @ 1.14
Speed of Funding
As fast as same day
Move at the Speed of Business with Merchant Cash Advance (MCA) Financing
In business, cash shortfalls happen. And expenses and opportunities arise unexpectedly. But sometimes, traditional financing just isn’t in the cards—whether it’s a matter of timing, credit score or years in business.
A merchant cash advance can prove to be a viable alternative.
With this substitute to traditional small business loans, you can acquire the capital you need now to act on an opportunity or keep your operations running.
How Do Merchant Cash Advances Work?
What is a merchant cash advance? An MCA is a lump sum of capital lent against a business’s future sales.
By definition, business cash advances are short-term and are repaid through smaller daily (or weekly) payments until the total advance and lender fees are paid in full.
A small business can apply for an MCA and have an advance deposited in its account quickly. For this reason, it’s a go-to resource for business owners in need of cash now.
So how do they work? The answer comes down to the type of cash advance you choose.
Merchant Cash Advance Options
In its traditional form, merchant cash advances are suitable for businesses that deal with large volumes of debit and credit card transactions. Today, the product has evolved into a second program that can benefit any small business.
The difference boils down to how the advance is repaid and how an MCA lender assesses rates and fundability.
Traditional MCAs
In a traditional cash advance agreement, a lender will deduct a percentage of your credit or debit card sales on a daily or weekly interval. The process is known as a “holdback.”
The repayment period typically ranges from 3 to 18 months, though there’s no set-in-stone end date. The higher your credit card sales, the faster you’ll pay the advance off.
Say your lender holds back 15-percent of your daily credit card and debit card transactions. As your sales rise and fall, so do your MCA payments.
Merchant Sales
$1000
$750
$500
Daily Holdback
$150.00
$112.50
$75.00
With a merchant cash advance, your payment will shift to the pace of your income, helping you avoid cash flow disruptions when sales are down.
Determining Eligibility
MCA lenders determine advance amounts based on projected credit and debit card sales. Whereas the holdback percentage is calculated on the advance amount and the expected payback time. Typical holdback rates fall within the 10 to 20 percent range, though this can vary widely based on the business and risk.
ACH Merchant Cash Advances
The second variation of a merchant cash advance is known as an ACH MCA, or an automated clearing house withdrawal.
In this agreement, payments to MCA lenders are fixed and occur over a set term. This means your daily or weekly payment will remain the same regardless of your sales volume. Funds are drawn automatically from a business owner’s linked bank account.
Determining Eligibility
ACH advances are based on a business’s total projected revenue, not on credit card or debit card transaction totals alone. As a result, this type of business advance is applicable to all small business owners—not just those with high credit and debit card sales.
Merchant Cash Advance Rates
A business that utilizes a merchant cash advance will typically pay back 10 to 30 percent or more of the amount borrowed. This percentage is known as a factor rate, and it’s most commonly expressed in decimal form. For instance, a factor rate of 10 or 30 percent would be represented as 1.1 and 1.3, respectively.
How MCA Factor Rates Differ from Interest Rates
Unlike interest that accumulates over time and is a calculation based on depreciating principal, MCA fees are calculated once at the time of origination. The cost is worked into your scheduled payments and is unchanging. If you pay off your advance in 4 months or 12, the total paid remains the same.
To better understand how these rates affect your total payback, let’s look at a few examples:
Advance * Factor Rate = Total Payback Amount
MCA Amount
$10,000
$50,000
$100,000
Factor Rate
1.15
1.18
1.20
Total Payback
$11,500
$59,000
$120,000
The factor rate you’re quoted will depend on your industry, average monthly sales, the stability of those sales, the time you’ve been in business and other risk factors.
When Does It Make Sense for a Business to Use a Merchant Cash Advance?
A cash advance makes sense when a business is presented with a time-sensitive, short-term capital need. The application and underwriting process is streamlined, allowing you to apply, qualify and receive funding, sometimes as soon as the same day you submit your application. If you run into an emergency expense or are pressed for time, an MCA can help you avoid waiting weeks (even months) for the funds you need right now.
Because requirements are less stringent than most forms of small business financing, MCAs are also an option for business owners with bad or less-than-perfect credit.
Consider an MCA if:
- You need a cash advance now
- You have consistent monthly sales
Look elsewhere if:
- You have time
- You qualify for other financial products with more favorable terms
How to Qualify for Merchant Cash Advance Funding?
Merchant cash advance providers evaluate risk and weigh credit criteria differently than loan lenders. What’s most important in MCA financing is projected sales. As a result, you can expect the best merchant cash companies to perform a thorough examination of your company’s deposit and closing balance statements.
A lender will also consider:
Industry: Different industries present different levels of risk to MCA providers. For example, sectors that routinely experience periods of high and low sales are riskier for lenders to work with, resulting in potentially higher factor rates.
Length of time in business: Most MCA lenders require small businesses to be in operation for a minimum of 6 months. Typically, the younger the business, the higher the factor rate.
Business sales and growth: An MCA provider will perform a financial assessment of your ability to repay the advance. As MCAs are based on future revenues, showing consistent sales and a proven history of growth bodes well for favorable rates and terms.
Business credit history: Because an MCA is an advance, your business’s credit score is less of a deciding factor, but it still comes into play. In general, the better your business credit score, the lower your factor rate.
Do you qualify?
Based on previously approved borrowers, you’re likely to qualify if:
- You’ve been in business 6+ months.
- Your annual revenue is $75K or higher.
- Your credit score is 500 or better.
How to Get a Merchant Cash Advance?
Merchant cash advance providers are found exclusively online. So finding a lender who can offer the best rates and terms can be a time-consuming task. Here’s where Fast Capital 360 can help.
Through our simple and secure application, small business owners, like you, are paired with the best merchant cash advance companies across the country. This way, you’re sure to secure competitive rates and terms.
Here’s how it works:
Step 1: Tell us about your business.
Tell us how you plan to use your funds and share information about your company.
Step 2: Tell us about you.
We need to learn about you so we can determine your eligibility. But don’t worry, this won’t impact your credit score.
Step 3: Submit additional financial documentation.
Upload financial documents to complete your application. We’ll review your financials to confirm your business has the cash flow to afford the daily or weekly advance payments.
Step 4: Get funded.
Funds are deposited in your business bank account in as little as 24 hours.
How Much Will an MCA Cost?
The amount you pay will depend on the program, the amount borrowed and the term. Nowadays, most MCA agreements are of the ACH variety. Let’s examine a quick example of this structure to get an idea of costs.
Advance Amount:
$8,000
Factor Rate:
1.25%
Term:
9 Months
Daily Payment:
$52.91
Total Repayment:
$10,000
Cost of Loan:
$2,000
What Will You Use Your MCA For?
MCAs can be used for just about anything and can help you handle any financial hurdles you may encounter.
Consider some of these possible scenarios:
Working Capital
If your business lacks working capital, a merchant cash advance can replenish the funds you need for daily operations. Whether you’re waiting on an invoice payment or dealing with a seasonal lull, an MCA can get you through these unsettling times.
Emergency Expenses
Unexpected expenses can burden your business when you don’t have deep cash reserves to draw from. The speed of a merchant cash advance can allow you to tackle financial hardships you didn’t see coming.
Growth Opportunity
When your business gets the opportunity to fulfill a large purchase order or take on a new client, it can require more capital than you have available. A merchant cash advance can help you access the funds your business needs to grow, without disrupting your cash flow.