How a Merchant Cash Advance streamlines your operations

How a Merchant Cash Advance streamlines your operations

If you’re looking for a fast, flexible solution to cash flow issues or short-term projects, a merchant cash advance (MCA) could give your business that extra breathing room it needs. Honestly, the first thing that comes first to mind when a business owner needs working capital is their local bank. But traditional bank loans take time, and for the most part, they’re harder to qualify for. If you need fast cash for unexpected expenses, and you don’t have the luxury of waiting. During desperate times, a merchant cash advance (MCA) is an option that most business owners should consider.

With an MCA, you have the freedom to fund just about anything for your business, including things like:

  • New or used equipment
  • Marketing material and campaigns
  • Additional cash flow for seasonal fluctuations
  • Hiring new employees
  • Renovations
  • Purchasing inventory and stock

What is a Merchant Cash Advance?

merchant cash advance (MCA), which is also known as a business cash advance was originally structured as a lump sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales. 

The term is now commonly used to describe a variety of small business financing options characterized by short payment terms (generally under 24 months) and small regular payments (typically paid each business day) as opposed to the larger monthly payments and longer payment terms associated with traditional bank loans. The term “merchant cash advance” may be used to describe purchases of future credit card sales receivables or short-term business loans

The term “merchant cash advance” may be used to describe purchases of future credit card sales receivables or short-term business loans

How does a Merchant Cash advance work?

An MCA is a lump sum of cash, and the amount you can borrow varies. Some lenders may allow you to borrow up to 250% of your firm’s typical credit and debit card sales. Others offer a fixed dollar amount that could range from $2,500 to $500,000, So, let’s paint an ideal picture here, you are a business and your sales are mostly on debit or credit cards.

Now, a merchant cash advance – again, not technically being a loan – is simply an amount of cash given to you by a financing company in exchange for a certain percentage of your sales, in addition to a simple fee. Repayment terms are anywhere between 3 to 18 months, and since a merchant cash advance is not a loan, it’s not subjected to the scrutiny or regulations that are imposed on a standard small business loan.

That means cash advances are a quick and easy way for merchants to acquire the cash flow they need, rather than waiting for a bank’s rigorous and slow approval process. It is a hassle-free way for short-term financing for no collateral, even if you have a bad credit score.

Types of MCA Advances:

Split funding: Split funding is an option that merchants have for their transactions to be processed and deposited into multiple accounts. Traditionally, credit card processing simply deducted a fee then sent the rest to a single account. With split funding, merchants can set up a pre-defined split percentage into multiple bank accounts.

  For example, a merchant can have 70% of their deposits go into Bank Account A and the reaming 30% into Bank Account B.

Lockbox: is offered for merchants that do not process with the below processors. With this program, the entire batch amount is transferred to the lockbox, a 3rd bank account into which all deposits are put, and you receive your funds from the lockbox after the cash advance company gets its portion of the batch amount.

Splitting your daily merchant credit card deposits using a 3rd bank account into which all deposits are put.


Why borrowers opt for a Merchant Cash Advance

Small businesses take out loans and cash advances when they believe that the opportunities offered by expanded financial assets will outweigh the costs. Small businesses that don’t have the cash on hand to fund an expansion by themselves could rely on external funding, such as a merchant cash advance.

Some advantages of an MCA are fast approvals, funding within 2 days, minimal documentation, bad credit that will not turn you down. There are a few disadvantages short repayment terms could be from 3 up to 18 months, daily or weekly payments, higher interest compared to traditional banks.

On one hand, MCAs are great when you require fast business funding, and it’s suitable for a multitude of business purposes with fairly easy approval rates especially when your credit score is not so good. Still, a merchant cash advance is far from being the best borrowing option, and with the rise of online business loans, you can get some of these advantages with other types of small business financing products.

MCA Alternatives

Before turning to a merchant cash advance, small-business owners should seek out alternatives, compare all the options first. With that in mind, you should look into these other short-term financing solutions than the merchant cash advance:

  • Short-term business loan. A short-term loan can give your firm a lump sum of cash to meet working capital needs or to cover day-to-day expenses. It may have a fixed or variable APR. These loans may require a personal guarantee but not collateral. 


  • Business lines of creditInstead of a lump sum of cash, you receive access to a revolving credit line you can tap as needed. You only pay interest on the amount you borrow. A business line of credit is flexible enough to cover just about any funding need. But as with short-term loans, good credit and an established operating history are musts.


  • Invoice Factoring. Factoring has many identities and is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. In a nutshell, invoice factoring is a way for businesses to fund cash flow by selling their invoices to a third party (a factor, or factoring company) at a discount.


If you have a limited business history, bad credit score, and/or most of your sales are transacted on credit/debit cards, a  Merchant Cash Advance is a fitting solution to your financial shortcomings.


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