Merchant Cash Advance: Are They Right for Your Business?

As a business owner, you may find yourself at a point where you need more cash flow but may find it hard to go through a traditional bank or other funding institution. While there are many funding options available, one that may be available quickly to a business owner is a merchant cash advance.

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is a fast-funding option; however, funds are paid back through your merchant account’s future sales and can yield higher interest rates for payback. The merchant cash advances provider will base your approval on your company’s earnings from a certain time (for example 6 months of the transaction history) and then base your payback on a factored rate which can vary from lender to lender. 

How Does a Merchant Cash Advance Work?

Applying for and obtaining a business cash advance is customarily a pretty fast procedure. As soon as your business entity gets approved. Your business is often viable to receive your cash advance within a few business days of merchant cash advance (MCA) apply. While a cash advance is usually easy enough to get and you can have the MCA same-day funding in some cases.

The amount of money a borrower can get from a MCA can vary anywhere from a couple of thousand dollars to over $150,000. Often, business cash advance companies are expected to repay the merchant cash advance within a short period of time, usually between 18 to 24 months or sometimes even in less time frame. Even so, it is perfect not to go entirely off the lender’s judgment of what they think you can allow, and to assess if you will really be able to pay back the full cost within the lender-provided speculated time frame.

Pros of a Merchant Cash Advance

Some pros to consider when looking at merchant cash advance for a funding option are –

  • A strong credit score may not be a determining factor
  • Fast Funding (turnaround times up to 72 hours)
  • Flexible repayment options
  • No collateral is required
  • Requirements for the application are frequently pretty simple and curtail complicated paperwork
  • Unlike bank loans, the application process for MCA’s influence to be fairly quick, and funds are often released very quickly, making them ideal for emergencies or for any other situation where you require cash in a pinch

These pros are something to think about if you find your business in a bind and needing access to funds quickly, especially if your personal or business credit is lacking. The good news is that it is easier to qualify for a MCA than other funding options.

Cons of a Merchant Cash Advance

With any pros, there are cons to consider. While a merchant cash advance may be the only option on the table there are a few things to consider before sighing the dotted line such as –

  • Very high interest rates (upwards to 200% APR)
  • Daily payouts (something to consider when it comes to your revenue)
  • Building business credit is off the table

Typically, it is used to help businesses, but if you find your business struggling paying the advance back at higher interest rates may hurt you in the long run. Also, if you are looking at this to help build your business credit profile, a merchant cash advance would not be a viable solution for you.

Is a Merchant Cash Advance the Right Option for You?

You may be wondering at this point if a merchant cash advance loan is the right option for your business, and the answer to that question solely depends on your current need and your comfortability with the terms that are presented to you when and if you apply.  Every business operates differently, and every business has a different metric of revenue. At the end of the day, the decision is ultimately up to you as a business owner.

Final Thoughts

Merchant cash advances may be a great option if you find your business in a bind and needing access to funds quickly. Maybe you have a tradeshow coming up and need to stock up on collateral or need new equipment for your restaurant. No matter the need, one of the benefits is that you have flexibility on how to use the funds advanced to you.

If you have more questions about it and if they are right for you, feel free to reach out to one of our team of experts here at 5 Star Processing at 888-253-9692 or [email protected].

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