Merchant Cash Advance
Updated September 25, 2023
A Merchant Cash Advance offers business owners the opportunity to get immediate funding for their business. Just a small amount of paperwork is required and you can receive business funds the same day that you apply.
Table of Contents
What is a Merchant Cash Advance?
A merchant cash advance is a type of financing that provides small businesses with immediate cash and is paid back with a small percentage of the company’s daily credit card sales. The business owner receives the approved amount and then gradually pays back that amount plus a fee. It is a quick and easy way for small businesses to get the cash they need to cover expenses, such as buying inventory or equipment, without having to go through a traditional bank loan application process. This type of merchant funding can be a good option for small businesses that have a hard time qualifying for traditional bank loans. The entire process is fast and easy and business can receive funding as fast as the same day they apply.
What Will a Merchant Cash Advance Cost You?
The cost for a merchant cash advance depends on the factor rate and length of time you receive the advance. An example of a typical merchant cash advance package would be to receive $40,000 merchant loan for 12 months at a factor rate of 1.25 (25 percent). That would make the additional cost above the advance amount $10,000, so your total pay back amount would be $50,000. Your payment amounts would be based on daily payments using a 5 day a week schedule, and the exact payment can be figured out depending on the length of time for the advance. For more information on costs see the true costs of a merchant cash advance.
How Does Paying Back The Merchant Cash Advance Work?
Once you receive the funds via bank deposit you can expect daily debits from the credit card processing account for an agreed upon percentage over the course of the payback period. The daily processing option is calculated on a 5 day business week schedule that does not include holidays. This payback method is extremely easy because it is all done automatically through the credit card processor. There is no need to worry about ensuring you have money in the account to make payments, and there is no need to worry about late payments, it is all done for you. There is also an option for business owners that need funding but do not want a direct draw on their credit card processor.
Merchant Cash Advances Without Credit Card Processing
Being a leader in the business financing industry we also feature various business funding options for companies that do not process credit cards. The process is very similar to the above mentioned, however, instead of receiving the payments via the credit card processor we establish a program where a daily payment is deducted automatically from the business bank account. It is very convenient for business owners who receive the bulk of their revenues through different payment methods. We will continue to develop innovative funding solutions to ensure that our clients always have access to working capital.
How Much Do I Qualify For?
Merchant cash advance approval amounts depend on your monthly credit card revenue and overall business bank deposits. Approval amounts for this funding option can range as high as 100% or more of your monthly processing amounts. As an example, if your business currently has monthly gross receipts of $50,000 you can possibly get approved for 50k or more. This is a general guideline but can vary depending on the type of business you have.
Have a Merchant Cash Advance Already?
Many of our clients come to us after having a merchant cash advance out with another company. Some reasons why they have come are: the rates or payments for their merchant cash advance were too high; the funding amount wasn’t enough; they required additional funding; there were just too many add-on fees and they didn’t want to overpay for their next advance; or they were just not happy with the level of service. Shield Funding can pay off your existing advance and get you a better program that is less expensive, provides more funding, is not inundated with additional fees, and meets your expectations on every level. We also offer options for merchant cash advance consolidation for individuals that have multiple advances and want only one payment.
Apply Directly to One Source!
Get a merchant cash advance as fast as the same day. Shield Funding offers competitive rates and terms on all it’s funding programs. We have been assisting business owners for almost two decades and feature a five star rating.
A Bad Credit Funding Solution
Many clients come to us looking for an alternative to traditional business loans because they have poor credit or they just don’t meet the basic credit requirements from a bank. Our merchant cash advance is a great business funding solution for business owners that are looking for a bad credit business loan. Getting funded is based off of business revenues and not credit history which makes it great for individuals with lower credit scores. If you have been denied a business loan because of bad credit or you fail to meet traditional financing credit requirements our merchant cash advance program can be a great alternative.
Common Factors That Impact Your Merchant Cash Advance Application
Your credit history has very little influence in the approval process. What is more important is the actual health of your cash flow from the business. We look at your business cash flow and sales receipts over the most recent 3 to 4 months to help determine an approval amount. We also look at the time in business, although we can fund businesses that have been operating for only a few months, having time in business is a plus. This is another one of the business funding programs that can be available if you have bad credit.
Is It Right For You?
This is a very common question because many business owners are taking on debt to grow their business. There are a variety of things to consider as each individual case is different, but two things in particular are very important and should be considered.
First, is budgeting for your payments. Do you have the available cash flow for current and future payments. Second, is the reason you are taking on debt justifiable. It is important that you account for ROI or your return on investment. It does not make sense to take on debt that is more expensive than the profit opportunity. Short term ROI is easy to calculate with the following formula: your return on the investment (%) = net profit/total investment cost, and then multiply by 100. So as an example, if you have an advance of $50,000 for a year with a 20 percent fee your total cost is $60,000. If this investment in your business makes $10,000 more a month (12 x $10,000=$120,000), after a year your net profit would be ($120,000 – $60,000=$60,000). Now figure out your ROI as $60,000 (net profit) / $60,000 (investment cost) which equals 1 and then multiply that by 100 (1 x 100). This would make your ROI in this scenario a 100% return on your investment. If you want to read more on whether this type of business funding is a good fit explore this helpful article about whether or not a merchant cash advance is right for you.
Advantages & Disadvantages
Advantages
- Minimum Revenue Requirements
- Only 2 Months in Business Required
- Low Documentation Requirements
- No Credit Requirements
- Easy Payment Process
- No Collateral required
- Fast Funding Turnaround
Disadvantages
- More Expensive Than Traditional Loans
- Impacts Credit Card Cash Flow
- Only Short Term Funding
- Only Daily Payment Option
- Some Caps on Funding Amount
- May Require Personal Guarantee
- Quicker Payback on Higher Revenue
Merchant Cash Advance vs. Traditional Bank Business Loans
We are the first ones to say that a bank should always be your first stop when trying to secure money for your business. You can save some money on the costs of borrowing and you can stretch out the time for longer periods. A merchant cash advance is for clients that have reasons to not go the traditional financing route. Both business funding options have their pros and cons depending on your situation, and before applying you may want to compare alternative business loans against bank loans. Whether it is for an opportunity that cannot wait for the duration of the bank approval process, or the client cannot qualify for the bank’s very stringent approval process.
Merchant Cash Advance Document Requirements
Documents Required for Less Than $100,000
- Drivers License
- Bank Statements
- Proof of Ownership
- Property Lease Agreement if Applicable
- Credit Card Processing Statements
- Voided Check
Potential Docs for More Than $250,000
- Personal Tax Returns
- Business Tax Returns
- Profit & Loss Statement
- Balance Sheet
- Business Debt Schedule (possible)
- Potential for Others
Alternatives to a Merchant Cash Advance
There are a variety of ways someone can fund a business endeavor. For some a line of credit may be a good option. For others, invoice factoring may work better as the company has a lot of unsettled invoices from reputable clients. There is also always friends and family. Obviously all of these options mentioned have their plusses and minuses, but they should be considered in the funding process as well as any others not mentioned. The important point is that funding your business should be well thought out. For some people, a financial planner or accountant can be a good option to consult with before making a decision. You can also explore the best alternatives to a merchant cash advance. We also have a highly trained staff that can help answer any questions during the exploratory phase.
Merchant Cash Advance Frequently Asked Questions
This type of business funding has low document requirements so you can receive funding possibly in the same day you apply.
This type of alternative funding is very flexible, clients have been funded with a 500 FICO score.
There are no restrictions, you can use the money how you see fit.
It may be possible, it just depends on a few factors. Speak with your representative for more details.
Unfortunately we require at least 2 months of revenues so you would need to be in business already.
Any credit inquiry, soft or hard, can be visible on a credit report and a small point drop is possible. However, according to Experian it can be 24 months or less where inquiries fall off.
This is also possible, it just depends on a few factors. Speak with your funding representative about second position merchant cash advances to see if it makes sense for your business.
The short answer is Yes. This can depend on several details about the offer but it is definitely possible. Speak with your funding representative.
A minimum of two months in business is required, but in most cases you should be in business for at least 6 months.
No. We take pride in the privacy we offer our clients, we never sell your information to anyone.
This is a question for a CPA but you may be able to deduct the fees paid as a business expense.
Like any debt you default on it usually ends up with a collector over time. However, it is a good idea to contact your lender and explain your situation.
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