Top 5 Merchant Cash Advance Companies

Updated on March 5, 2020
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Overview of Merchant Cash Advance Companies

Merchant cash advance companies advance you a fixed amount of money and purchase a portion of your future credit and debit card receivables. Every time you make a credit or debit card sale, the company takes a small cut of the sale until you’ve fully paid back the advance.

The top five merchant cash advance companies are:

Cash Advance Company Eligibility Requirements Advance Amounts Factor Rates
Three months in business; 550 credit score; $5K monthly revenue
$5K – $500K
1.22 – 1.30
Six months in business; $150K annual revenue
$2.5 – $250K
1.15 – 1.48 (plus $595 administrative fee)
One year in business; $3K monthly credit card transactions
Up to $250K
1.17 – 1.36
Open to select Square sellers
$500 – $250K
1.1 – 1.16
Open to select PayPal sellers with a PayPal Business or Premier account for at least three months
Up to 35% of annual PayPal sales (cap of $200K on first advance)
1.01 – 1.58

In this guide, we’ll walk you through the details on these top merchant cash advance companies, how merchant cash advances work, and more affordable funding alternatives for your business.

5 Best Merchant Cash Advance Companies

When searching for a merchant cash advance company to work with, be sure you’re working with the best. There are unfortunately a lot of predatory lenders in the space, so fully vet your options before you sign on the dotted line with any of them.

Here’s a list of some well-known merchant cash advance companies:

1. Rapid Finance

Rapid Finance aims to serve business owners who can’t qualify for bank loans and other term loan products. They provide merchant cash advances, short-term loans, and lines of credit.

Rapid Finance can offer funding to business owners who have a credit score of 550 or higher. To qualify for a merchant cash advance with Rapid Finance, your business must have been operating for at least three months and generate at least $5,000 per month in revenue. Most of that revenue should come from a steady, strong flow of credit and debit card sales.

The advance amounts from Rapid Finance go up to $1 million, with factor rates ranging between 1.22 to 1.30. The longer you’ve been in business, the larger the advance (as high as 250% of your monthly sales) and the lower the rate Rapid Finance can offer you.

2. CAN Capital

CAN Capital is best known for their short-term loan product, but they also offer merchant cash advances. As a business cash advance company, they offer advances ranging between $2,500 and $250,000, with daily, automatic payments.

And as with most merchant cash advance companies, CAN Capital can provide funding very quickly, in as few as two business days. The company estimates most of their customers take six to 18 months to pay back the advance.

To qualify for a CAN Capital merchant cash advance, you need to demonstrate at least six months in business, at least $150,000 in gross revenue, no more than $175,000 in outstanding tax liens and judgments, and no personal or business bankruptcy within the last one year.

Factor rates on their MCA product range from 1.15 to 1.48, making CAN Capital a little more expensive than Rapid Finance. There’s also a $595 administrative fee to set up your account.

3. National Funding

Another merchant cash advance company to consider is National Funding. They offer advances up to $250,000 with automatic daily repayments. They’re one of the fastest merchant cash advance companies out there, with the ability to offer same day approvals and get the money in your bank account in as few as 24 hours.

You can pre-qualify for National Funding if you’ve been in business at least one year and your monthly credit card transactions are over $3,000. This makes National Funding a good option for businesses that might lower revenue volumes. To get started, you just need to fill out an online application and send in the last four months of credit card processing statements.

National Funding’s factor rates range between approximately 1.17 and 1.36, which puts them roughly on par with CAN Capital in terms of cost.

4. Square Capital

Is there such a thing as an affordable merchant cash advance? The closest you might get to that is Square Capital. Square is well known as a payment processing company. However, they also offer merchant cash advances to businesses that use the Square platform for payment processing.

Square merchant cash advances are more affordable than traditional merchant cash advances because they work with select borrowers who already use their platform. Square provides between $500 and $250,000 in capital to Square Sellers. There aren’t any hard and fast eligibility requirements, but Square looks at your processing volume and account history. If you show a steady history of credit and debit card sales, you could qualify for an advance.

Square charges factor rates of about 1.1 to 1.16, which puts them on the more affordable end of merchant cash advances. The entire advance must be repaid in full within 18 months of approval. If you accept payments through Square, then you should definitely check in your Square dashboard if you qualify.

5. PayPal Working Capital

PayPal is another payment processing company that also provides merchant cash advances. Their merchant cash advance product is called PayPal Working Capital. PayPal can extend you an advance in an amount that’s equal to 35% of your annual PayPal sales, with a cap of $200,000 for your first loan.

To qualify for PayPal Working Capital, you must have had a PayPal Business or Premier account for at least three months. You must be processing at least $20,000 in annual PayPal sales (or be projected to do so) if you have a Premier account or at least $15,000 (or be projected to do so) in annual PayPal sales if you have a Business PayPal account.

The rates that PayPal attaches to their cash advances can be as low as about 1.01 and all the way up to 1.58, so if you’re able to qualify for some of their lower rates, PayPal might be the most affordable merchant cash advance company for you. You can choose the repayment percentage that you want PayPal to deduct from your daily credit and debit card sales. The lower the percentage you choose, the longer it will take you to pay back the advance and the higher your factor rate will be.

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How Merchant Cash Advance Companies Work

When you get a merchant cash advance, the company advances you capital that you can use for business purposes. In return for the cash advance, you agree to pay the lender back with a small, fixed percentage of your daily credit card and debit card sales.

Merchant cash advance companies will deduct the fixed percentage of your business’s credit card sales until you’ve fully repaid the advance. Although MCA companies are quick to point out that they are technically not lenders (because they are purchasing your future credit and debit card receivables), a merchant cash advance functions like a loan.

There are a few terms you should know right off the bat that merchant cash advance companies will use.

    Advance Amount

    This is the amount of capital the company will advance you, based on a review of your historical sales. It’s usually no more than 125% of your average monthly credit card sales.

    Factor Rate

    The factor rate tells you the total amount you have to pay back to the company. For example, if you take an advance of $100,000, and the company charges a factor rate of 1.2, you have to pay back $120,000. Average factor rates on merchant cash advances range from 1.1. to 1.5.

    Daily Retrieval Rate

    This is the percentage that the company takes from your daily credit and debit card sales. The average daily retriveral rate for MCAs is 10% to 30%.

If your financing agreement allows the merchant cash advance company to take a larger percentage of your daily credit card sales, you’ll pay your MCA off faster. On the other hand, if the daily retrieval rate is low, your MCA will be on your books for longer.

The average repayment time frame for a merchant cash advance is eight to nine months—but it can be as short as three months and as long as 18 months. The exact time will depend on the regularity of your debit and credit card sales. If you have a day with no sales, the merchant cash advance company cannot deduct repayment that day. If you have several such days with no sales, that will end up extending your overall repayment time.

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How Expensive are Merchant Cash Advance Companies?

The biggest downside of a merchant cash advance is the high cost. You might be attracted to the speed and ease of working with merchant cash advance companies, but that comes at a cost. A merchant cash advance is the most expensive type of business loan on the market.

Factor Rates on a Merchant Cash Advance

Business lenders quote cost in different ways. Merchant cash advance companies often quote cost with a factor rate, instead of an interest rate.

A factor rate will come in the form of a decimal, not a percentage. In order to understand how much they’ll owe merchant cash advance companies in total, borrowers need to multiply the factor rate by their loan amount.

Most merchant cash advance companies will charge a factor rate between 1.1 to 1.5. To find the true cost of your merchant cash advance, you should always convert your factor rate to an annual percentage rate (APR). APR tells you the true cost of financing over a one year period, including all fees. When you convert an MCA’s factor rate to an APR, you’ll quickly realize how expensive these loan products can really get—APRs start at 15% but can get all the way up to the triple digits. Typical APRs on a merchant cash advance range from 40% to 150%.

 

    Merchant Cash Advance Example

    Let’s say your business needs some capital quickly to buy supplies to fulfill an order. The supplies cost $20,000. You apply to some merchant cash advance companies, and one of them approves you for the financing. Your financing agreement specifies a factor rate of 1.3, which means you have to pay the company back a total of $26,000.

    Suppose further that the financing agreement specifies a daily retrieval rate of 15%.

    Let’s see how much your business has to pay to the merchant cash advance company based on three hypothetical business days:

    • Day 1: Your credit and debit card sales equal $500. The MCA company gets 15% of that, or $75.
    • Day 2: Your credit and debit card sales equal $0. Since you didn’t make any money today, the MCA company gets nothing as well.
    • Day 3: Your credit and debit card sales equal $2000. The MCA company gets 15% of that, or $300.

    As you can see, the merchant cash advance affords you some flexibility. Borrowers repay merchant cash advance companies a smaller amount of money during slower weeks and months. On the flip side, merchant cash advance companies will take more away from your credit card sales during your most successful weeks and months.

    Assuming you pull in about $25,000 in monthly sales, you would take approximately 208 days, or seven months, to pay back this advance. And everyday that you generate sales, you’ll see significant cuts to your cash flow. This can be tough on any business, but especially on new businesses.

    That brings the APR of the merchant cash advance to 96%. That’s a lot more expensive than the product seems at first glance, and probably a lot more than you expected to pay.

    See our merchant cash advance calculator to understand how we calculated that.

Is a Merchant Cash Advance Ever Worth the Cost?

When you do the math, you’ll find that merchant cash advance companies are charging you a lot for access to quick and easy cash.

A merchant cash advance is worth the price only if you’re confident that you can get the debt off your books quickly. If you have a high volume of steady sales, you’ll be able to quickly repay your MCA. Then, your cash flow won’t suffer too much.

Fast repayment is possible only if your business is generating consistent sales revenue. However, the irony is that if your business is bringing in good revenue, then you can probably qualify for a less expensive loan product. In every case, borrowers should always know exactly how much an MCA will cost before they get into an agreement with merchant cash advance companies.

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Pros and Cons of Merchant Cash Advance Companies

We always recommend small businesses go with the most affordable product they can qualify for. And that usually isn’t a merchant cash advance. However, merchant cash advances are right for some businesses at certain points of the business life cycle.

These are the pros and cons of merchant cash advance companies that you should weigh before you commit.

Pros of Merchant Cash Advance Companies

  • Fast funding within one to two business days
  • Bad credit is okay
  • Startups are eligible
  • Flexible repayment: pay more on good days, pay less on slow days
  • No collateral and no personal guarantee needed in most cases

Cons of Merchant Cash Advance Companies

  • Most expensive, “last resort” business financing option
  • Significantly cuts into cash flow
  • Tough to change your merchant service/credit card provider
  • Short terms and small loan amounts
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Top Alternatives to Merchant Cash Advances Companies

Before you commit to a business cash advance, make sure it’s absolutely the right option for you. Do your research on merchant cash advance companies and don’t just settle for the first lender who sends you an offer.

Part of your research should involve looking at alternative financing options. If there’s more affordable that’s available, then you’re probably better off choosing that.

Here are your best alternatives to working with merchant cash advance companies.

Short-Term Loans

If you are interested in an MCA because you need a quick infusion of capital, you might want to consider a short-term loan instead.

Plenty of lenders who offer merchant cash advances offer short-term loans as well, and you can find lenders who specialize in just short-term loans. Most of these lenders, with the exception of banks, operate online. As a result, you can get a short-term loan in as little as two days, with lower APRs than a merchant cash advance.

APRs on short-term loans range from about 8.5 % to 80%. That’s still pricey but significantly lower than a merchant cash advance. And the payments are more predictable, so they won’t each into your cash flow too much.

Like a merchant cash advance, you’ll still get a lump sum of money with a short-term loan, which you pay back—plus interest—over three to 18 months. With a short-term loan, you can get as little as $2,500 to as much as $250,000 in funding.

One of the advantages of a short-term loan is that most short-term lenders don’t require borrowers to submit a lot of paperwork for their loan application. This means that you’ll spend less time gathering business loan requirements, the lender will spend less time processing all the required paperwork, and you’ll get the capital you need faster.

    Short-Term Loans: Fast Facts

    • Loan Amounts: $2,500 to $500,000
    • Term: 3 to 18 months
    • Speed: As few as 2 days
    • Interest Rates: 8.5% to 80%

Secured Loans

Merchant cash advance companies provide attractive offers for small business owners who don’t qualify for other business financing options. But if you have some collateral to offer, then you can potentially get a better deal on financing.

Invoice financing and equipment financing are examples of secured financing. You put down something valuable to the lender (invoices or equipment) in exchange for the capital.

    Equipment Financing

    • Loan Amounts: Up to 100% of the equipment’s cost
    • Term: 1 to 10 years
    • Speed: As fast as 2 days
    • Interest Rates: 8% to 30% APR

    Invoice financing solves a problem that many small business owners run into: You’re waiting on your customers to pay your invoices, and in the meantime, your cash flow takes a serious hit.

    If you have a B2B business and invoice customers for your products and services, you should consider invoice financing.

    With invoice financing, lenders can offer you a cash advance of about 85% of your outstanding invoice amount. Once your customer pays the invoice, you’ll get the remaining 15%, minus any of the lender’s fees. Usually, lenders will charge a processing flat fee of about 3%, and then a weekly fee of around 1% for each week it takes your customer to pay the invoice.

    Invoice financing can be a great option for small business owners who don’t qualify for other loan products because the invoices serve as collateral for the loan. Since the invoices back the cash advance, lenders are willing to extend capital to business owners with bad credit or no personal collateral to offer.

    Invoice Financing

    • Loan Amounts: 85% to 90% of the invoice amount
    • Term: 1 to 13 weeks
    • Speed: As fast as same day
    • Interest Rates: 13% to 60% APR

    Invoice financing solves a problem that many small business owners run into: You’re waiting on your customers to pay your invoices, and in the meantime, your cash flow takes a serious hit.

    If you have a B2B business and invoice customers for your products and services, you should consider invoice financing.

    With invoice financing, lenders can offer you a cash advance of about 85% of your outstanding invoice amount. Once your customer pays the invoice, you’ll get the remaining 15%, minus any of the lender’s fees. Usually, lenders will charge a processing flat fee of about 3%, and then a weekly fee of around 1% for each week it takes your customer to pay the invoice.

    Invoice financing can be a great option for small business owners who don’t qualify for other loan products because the invoices serve as collateral for the loan. Since the invoices back the cash advance, lenders are willing to extend capital to business owners with bad credit or no personal collateral to offer.

Business Credit Cards

You might not have thought of using business credit cards in place of a loan, but if your loan options are limited, using a business credit card as a loan can be a smart move.

You don’t need collateral to apply for a business credit card, you can get your card within just a few days, and lots of perks come with business credit cards. Several cards offer cash back, rewards, and 0% introductory APR for the first several months. During that time, these cards are like free loans: You can put expenses on the card up to the credit limit, and you don’t have to pay interest on the balance you roll over month to month.

    Business Credit Cards: Fast Facts

    • Loan Amounts: Credit limits start at $2,000 to $25,000+
    • Term: Pay monthly minimum balance
    • Speed: As fast as same day
    • Interest Rates: 13% to 21 % APR

The Bottom Line

When you find yourself needing quick cash for your business, you might be tempted to work with merchant cash advance companies. After all, they can give you capital within just a few days, and repayment is flexible, going up or down in tune with your sales revenues.

The problem is cost–business cash advances can really eat into your cash flow and harm your business’s long-term financial health. So next time you need fast capital, first consider all of the alternatives to merchant cash advances. With the right loan product, you’ll be able to help your business grow without taking on too much debt.

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Senior Contributing Writer at Fundera

Priyanka Prakash, JD

Priyanka Prakash is a senior contributing writer at Fundera, specializing in small business finance, credit, law, and insurance. She has a law degree from the University of Washington and a bachelor's degree from U.C. Berkeley in communications and political science. Priyanka's work has been featured in Inc., Fast Company, CNBC, and other top publications. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup. Email: priyanka@fundera.com.
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