Is a Merchant Cash Advance Right for My Business?
Merchant cash advance is a quick, easy way to get a business cash advance with no need for collateralâeven if you donât have a great credit score.
$2,500 - $250,000
Automatically deducted each day through your merchant account
1.14 - 1.18
Would your business be eligible for a merchant cash advance?
If you have little or no collateral, limited business history, or a low credit rating, merchant cash advances could be a solution to your financing problems.
Merchant cash advance providers tend to have easy eligibility standards, so most small businesses shouldnât have a problem qualifying.
For businesses that make a big portion of their revenue through credit card paymentsâif you own a restaurant or a retail store, for exampleâthen you can use a merchant cash advance as a short-term financing tool. It can help with working capital, inventory purchases, debt payments, unexpected payments, and more.
**Based on past Fundera customers.
Every business could use some extra capitalâ¦
But applying for loans takes time and energy that you might not have.
Plus, even after you send out an application, thereâs a chance you donât even qualify.
At Fundera, we pride ourselves on having a marketplace that can help out all different sorts of business owners. If you donât have the time to wait for a typical loan or wouldnât qualify, a merchant cash advance might be for you.
How would you like a cash advanceâapproved and funded in just a day or twoâwith almost no paperwork involved?
Thatâs what a merchant cash advance is, with one caveat:
In return for that lump sum advance, you agree to pay the lender back with a percentage of your daily credit card sales.
While a merchant cash advance is definitely one of the faster financing options out there, it is the most expensive loan on the market.
Proceed with caution.
Many people use the terms merchant cash advance and business cash advance interchangeably. However, you may encounter small business lenders who offer business cash advance products that don't operate like traditional MCAs.
Swift Capital, for example, will buy a certain percent of your future sales just like a MCA. But instead of paying back with a set percent of your daily credit card sales, you will pay them back with a set percent of your total sales. The payments are made with ACH withdrawal. Like an MCA, you pay more when business is good and less when business is slow. As your payments fluctuate based on your sales, there is no set term.
If you are considering a merchant cash advance, we recommend comparing a true business cash advance product alongside any offers you get.
Merchant cash advance providers measure their fees with a factor rate instead of an interest rate.
Ranging from 1.14 to 1.48 typically, a factor rate is what you multiply your loan amount by to figure out the total youâll owe.
Converted to APR, these rates often start at 15% but can get all the way up to triple digits.
The average repayment time frame for a merchant cash advance is 8 or 9 months.
But the term can be as short as 4 months and as long as 18, depending on your business.
And the higher the fixed percentage of your credit card sales youâre paying the lender with, the shorter your repayment timeâand the tighter your cash flow.
How do you know whether a merchant cash advance will make sense?
On the one hand, paying off a loan with daily credit card sales can bite into your cash flow more than you might expect.
On the other, youâll actually repay a lower amount of money during slower weeks and monthsâunlike with a term loan, where youâll either make your payments on time or suffer the late fees.
In the end?
Itâs up to you to understand your businessâs financials.
Just remember that a merchant cash advance is the most expensive financing option you could pick.
Letâs look at how you can calculate the actual cost of a merchant cash advance.
Say youâre advanced $20,000 with a factor rate of 1.18.
$20,000 multiplied by 1.18 is $23,600, which is what youâll need repay with your daily credit card transactions.
At first glance, that might seem like youâre just paying a 18% interest rateâbut looks can be deceiving.
You have to determine the true cost of the merchant cash advance by its APR.
If your lender will be taking 15% of your future credit card sales and youâre estimating $25,000 a month in credit card transactions, youâd repay that advance in 189 days with daily payments of $125.
Thatâs an APR of 65.96%âquite a bit higher than it originally looked.
Merchant cash advances, while fast and convenient, tend to be worth their price only if youâre confident you can repay them quickly and without much harm done to your cash flow.
Just be sure to shop around and see if you can qualify for other types of loans before moving forward with a merchant cash advance.