Merchant Cash Advance

• Minimum Credit Score: 400
  Minimum Time in Operation: 5 months
  Minimum Revenue: $75,000 annually

A quicker alternative to more traditional funding methods, a Merchant Cash Advance (MCA) can allow merchants to sidestep the lengthy approval process of other loan types and borrow cash against future sales. In fact, an MCA isn't technically a loan, but rather, as the name suggests, a cash advance.

Once you've qualified, your MCA provider will lay out in the advance agreement the amount of cash they are willing to advance, the term of the advance, the holdback, and the repayment structure. The holdback is the percentage of daily credit or debit card sales which are withheld to pay back the advance.

MCA providers evaluate risk differently than banks and other financial institutions. While your credit score may be important, they will evaluate the amount of cash they are willing to advance by reviewing your daily credit or debit card receipts to determine your ability to repay the loan.

There are two main advantages to an MCA over other types of traditional business financing. First, the holdback amount will be in direct proportion to sales. When business is booming, the debt will be paid down quickly, but if business is slow, you won't find yourself struggling to come up with fixed payments. Additionally, collateral is not required for an MCA.

Interest Rates on MCAs can be substantially higher than for other forms of business financing so consider carefully if this option is for you.

Relatively quick compared to other forms of financing, an MCA can be acquired in as little as one business day, but most often will take several days. Once the advance is approved, funds can be available in as little as 2 business days.

The application process is significantly different from other types of funding.

Apply for Funding. The application will require at the very least your social security number, business tax ID and the usual identifying and contact information for your business.

Provide Documentation. As stated above, this will include credit and debit card statements and may include bank statements, proof of citizenship and a copy of your business lease, if applicable.

Wait. Your advance may be approved in as little as 24 hours but be prepared for a few days.

Set Up Credit/Debit Card Processing (if applicable). Depending upon who your MCA provider is you may be required to switch to a different card processor. While inconvenient, this is sometimes unavoidable.

Sign the MCA Agreement. This agreement will lay out funding and advance repayment details including the amount you're approved for, the holdback percentage and the amount of interest and/or fees.

Funding. Your MCA provider will deposit the funds to your business account, usually within 2 business days. Repayment will be handled automatically as you process payments from your customers.

While not advisable as a long term strategy for accessing cash, an MCA might be the best option to take advantage of a short term business opportunity such as purchasing inventory at a discount. It might also be used by operations that conduct business almost entirely through credit or debit payments but don't have a good credit score and so can't qualify for other types of financing.

Benefits

• Lukewarm credit OK
• Relatively easy application process
• Quick access to cash
• Can be used for a wide variety of purposes

Drawbacks

• Relatively high Annual Percentage Rate (APR)
• Payments reduce daily cash flow
• May be required to switch merchant service provider