Merchant Cash Advance

A merchant cash advance, also called revenue-based financing, isn’t technically a loan. Instead, it’s a financing option that allows your business to get capital—quickly and easily—by utilizing future credit card sales.

Merchant cash advances can come with funding amounts as high as $5 million – making them a great alternative to traditional business loans. Even better, they’re much more accessible than other types of financing. Merchant cash advances for startups and younger businesses are a largely viable solution.

They offer access to fast, flexible financing without fixed-monthly payments. Instead, you’ll pay back your loan via a small percentage of future sales. This setup allows you can receive cash right away to put toward any new opportunity or business expense.

Merchant cash advances are ideal when you need funds now and don’t want to go through the hurdles of applying for more traditional forms of financing – such as business loans or SBA programs.

This type of financing is unsecured, so you’re not required to put up collateral. It also has the benefit of allowing you to keep your cash flow steady by making payments based on daily credit card sales instead of a set schedule. In other words, your payments can adjust according to how well your business is performing.

Merchant cash advances are ideal for businesses with high credit card sales or seasonal revenue fluctuations. Funds from a merchant cash advance can be put towards a large range of expenses – including operating costs, growth opportunities, and more.

Unlike traditional loans, where you make payments to your lender on an agreed-upon schedule, merchant cash advances are repaid through small automatic deductions from your business bank account. Payments are predictable, and you don’t have to worry about your rate changing at any point during your repayment unless specifically outlined in your contract.

The application and approval process is identical to other types of financing, but the qualifications are much less stringent. Credit scores and time in business fall by the wayside in favor of a business’s profitability, with some lenders focusing only on a business’s revenue to determine eligibility.

Merchant cash advances have a negative stigma associated with them, but they’ve come a long way from their troubled predecessors. Today, revenue-based financing is leveraged by businesses large and small, allowing them to invest in growth-driving opportunities and keep themselves moving forward.

Some of the biggest benefits of a merchant cash advance include the resolution of short-term cash flow issues, flexibility when it comes to the funding of different expenses (such as covering unexpected costs or purchasing inventory) and speed. Additionally, you can get this type of funding even with bad credit.

Here are a few of the most notable benefits:

• No personal guarantees
• No real estate collateral
• Flexible payment terms
• Fast funding times
• Limited eligibility criteria

Merchant cash advances are some of the fastest financing solutions available. Other types of business loans can take several weeks or months to process. However, merchant cash advances tend to deliver cash almost immediately. They’re especially popular among businesses with seasonal lulls or frequent cash flow disruptions.

Merchant cash advances don’t have interest rates. Instead, they have factor rates, which work similarly with a few unique differences.

While interest rates are a percentage that’s applied to each payment, factor rates are decimal numbers that are much more straightforward. Let’s look at an example.

A client is given $300,000 at a 1.3 factor rate. To determine the cost of capital, the client multiplies their funding amount by their factor rate ($300,000 x 1.3). The result is the cost of the financing, which is added to the funding amount to illustrate the total amount the borrower must repay.

Factor rates range from 1.1 to 1.8 on average. The lowest numbers are given to the most trustworthy borrowers, whereas higher factor rates are given to businesses with less revenue and more risk.

There are a variety of ways you can use merchant cash advance funding in your business, including:

• Materials/supplies
• Payroll
• Equipment and tools
• Operating expenses, like rent, gas, and asset maintenance
• Revenue-driving opportunities
• And much more!

There are no restrictions—use your capital to pursue any opportunity or overcome any challenge!

Merchant cash advances have various use cases, but their abridged repayment terms are best suited for opportunities that pay off in the short term and challenges that need to be solved immediately.

Here are a few cases where merchant cash advances are beneficial:

• A restaurant has a slow month and is unable to make payroll. Using an MCA, they can get the cash they need to honor their liabilities and pay back what they owe when revenue picks up in the next month
• A construction company is about to start a major contract but encounters cash flow challenges that restrict its ability to purchase needed materials and equipment. A merchant cash advance can yield the cash they need to start the project with confidence without jeopardizing short term cash flow
• A natural gas broker anticipates losing a major client in the next month. The change will undoubtedly cause cash flow constraints, so they leverage a merchant cash advance to bridge the gap as they search for a new prospect.

There are many other situations where merchant cash advances can keep your business moving forward. If you have questions about how a merchant cash advance can help your unique circumstances, feel free to reach out to the expert Business Finance Advisors at National Business Capital.

Much like other financing options, merchant cash advances are great in specific use cases while not as powerful in others. Use the following checklist to see if a merchant cash advance is right for your business.

• Do you have an immediate opportunity or challenge?
• Will you benefit from the opportunity/plugging the challenge within 18 months?
• Is your business profitable? Does your profitability outweigh your credit score?
• Are you prepared to have payments automatically deducted from your business bank account?
• Does the cost of your financing fit your bottom line?

If you’re looking for fast funding with limited eligibility requirements, merchant cash advances are great options. National Business Capital’s Business Finance Advisors can help you compare MCA products to other financing solutions to dig deeper into whether it’s a good move for your business specifically.

A merchant cash advance allows you to repay on the go, according to your business’s performance. When sales are high, you’ll pay down your debt faster. If sales slow, your payments will adjust accordingly. You can qualify for a merchant cash advance with National with:

• 6+ months in business
• $500,000 in annual gross sales
• No minimum credit score

That’s right—there’s no credit score requirement when you secure a merchant cash advance with National. Our team draws on extensive lender relationships to secure approvals that competitors can’t, giving you an undeniable edge as you look to grow and outpace your competition.

Better Terms. Faster Funding. Easier Process.

Accelerate your success with frictionless financing and expert advice that breaks down the barriers to growth for every entrepreneur. Thrive with access to a business lending marketplace that’s built for entrepreneurs, by entrepreneurs.

Experience a time-saving machine that cuts approval times from months to hours. Leverage an extensive network of over 75 lenders and teams of expert financing advisors to ensure you’ll always have access to the capital that best fits your business. 

Working with NBC, gain a financing partner for the future, ensuring your business has the capital it needs to seize every opportunity and grow without limits.

National Business Capital. Grow to Greatness.