A merchant cash advance, or MCA, is a lump sum of capital lent against a business’s future sales. Hence this type of financing is an advance and not a loan.

By definition, a business cash advance is short-term and repaid through smaller daily (or weekly) payments until the total cash advance and lender fees are paid in full.

A small business owner can apply for a merchant cash advance and, once approved, have the cash advance deposited into a bank account the same day.

The small business owner and MCA provider agree on the advance amount, payback amount, holdback, and term of the advance. Once an agreement is made, the advance is transferred to the business’ bank account. This is in exchange for a future percentage of credit card receipts. 

Depending on the way your cash advance is financed, your lender will either take a daily percentage of credit card sales or a percentage of the total daily business sales.

A holdback is when each day, an agreed upon percentage of daily credit card receipts are withheld, to pay back the MCA. This holdback will continue until the advance is paid in full.

A factor rate is the percentage a business pays back of the borrowed amount. Often, a business using a merchant cash advance will pay back 20% – 40% or more of the amount borrowed. There’s a difference between the holdback amount that a small business pays every day, which is a percentage of sales receipts, versus the repayment amount for the entire advance.

There could, for example, be a holdback of 15% and a repayment of 30%. It’s important for business owners to understand this distinction.

A holdback percentage is based on the amount of funds a business gets, how long it will take to pay back the money, and how big monthly credit card sales are.

The biggest advantage is a quick approval process: Compared to other forms of business financing, the MCA application and approval process is less involved. After reviewing past bank statements and business info, many MCA lenders can make a funding decision within hours.

Also, same-day funding available: MCAs are one of the fastest forms of financing on the market. Some merchant cash advance lenders can release funds the same day an application gets approval. 

There is no collateral required: Merchant cash advances are a form of unsecured financing. Therefore, you do not have to back the advance with collateral. 

And, most credit scores qualify: MCA lenders work with business owners even if their credit needs work. If you have the cash flow to support repayment, you can often get an MCA.

The biggest disadvantage is higher fees: On average, merchant cash advances are more expensive than other forms of financing. 

There are also shorter repayment terms. Though repayment periods will vary by lender and the individual qualifications of the borrower, often these advances must be paid back in 12 months or less. 

You can’t borrow as much. Advance amounts are based on your sales potential. Therefore the amount you qualify for may be lower than other forms of financing.

You often have to pay back MCAs on a daily or weekly basis. This can impact cash flow.

A small portion of each future credit card sale goes towards paying back the merchant advance loan.

There are no fixed repayment amounts or terms. This gives flexibility to your business if you are having a slow month.

A merchant financing program is ideal for business owners who accept credit cards and are looking for fast and easy business financing. An MCA program is designed to help you get funding, based strictly on cash flow as verifiable per business bank statements. As a result, lenders in general will not ask for any burdensome document requests.

This is not like what most conventional lenders demand. Their demands can include financials, business plans, and resumes. Best of all, you can get approval regardless of personal credit quality. You don’t even need collateral. Your business’s credit card receipts and business bank statements do all the talking.

No! With a merchant cash advance bad credit, you do not have to have good credit to qualify.  These loans leverage your positive credit card processing history to determine approval, not your credit scores.

There can be some credit score restrictions, but in most cases, you can get approval with even below average personal credit scores.

As a result, a personal guarantee doesn’t make sense for the lender. As long as your customers are paying you, then your business will be able to keep up with payments on an MCA. Since the amount you need to pay back fluctuates based on revenue, it’s a second incentive (beyond profit) to work hard toward success—you’ll pay your MCA off faster, too.

Since you can get paid a percentage early, an MCA works well with providing your customers with net 30 terms. 

If you provide your customers with net 30 terms, getting a merchant cash advance means you’ll get a percentage of your bill paid to you early, thereby reducing the interruption of your cash flow. You can cover any shortfalls while you wait for payment—and pay your own business’s bills. 

Your customers won’t need to know a thing. From their perspective, you’re just giving them good repayment terms. And because you can give them good payment terms with a lot less effort, it’s easy for you to continue to offer good terms throughout the life of your commercial relationship with them. This is something that your competition might not be able to do.