A merchant cash advance is an advance against future credit card sales. A provider analyzes past credit card sale receipts to project future sales and advances you a lump sum against those sales.
No, a merchant cash advance or MCA is not a loan. Repayment of principal plus interest isn’t amortized and you do not make a large monthly payment. Technically, the provider purchases a portion of your credit card sales in advance. MCAs are considered a commercial funding option.
Yes, some merchant cash advance providers will analyze all sales, just not credit card sales, to estimate future revenues and will advance a sum against that estimate. Typically, they’ll take their repayment through an ACH withdrawal (see below).
Online and alternative lenders offer business cash advances.
No, traditional banks do not offer merchant cash advances.
The size of the advance will depend upon your sales volume. Shield Funding offers merchant cash advances from $2,000 to $750,000+.
If you have all your documents ready when you apply, your advance can be funded within the same day you apply.
No, you can use the funds in the best way for your business.
You can take a second one depending on your sales volume and how much has been paid on your existing MCA, or you can consolidate more than one MCA.
Merchant cash advance providers don’t charge interest on advances, instead they charge a fee in the form of a factor rate.
A factor rate is a flat fee charged by a merchant cash advance provider. It’s shown as 1.2 or 1.5 in the advance documents, and in these examples it is 20% and 50% respectively.
Take the amount you’re borrowing, say $25,000, and convert the factor rate into a percent. Then multiply this merchant by the advance amount. Subtract the advance from this amount and you’ll have the provider’s fee.
For example: $25,000 X a factor rate of 1.5 (150%) = $37,500 – advance of $25,000 = $12,500 the merchant cash advance provider’s fee.
Merchant cash advance providers take a percentage of your daily or weekly sales. This percentage is called a holdback. The holdback could be anywhere from 10% to 20%. Providers use one of three ways to collect their repayment: split withholding, ACH withdrawal, or lockbox repayment.
Split withholding is one method to repay a merchant cash advance. The credit card processor splits your credit card receipts between you and the MCA provider. They send your payment automatically.
With this repayment method, the bank receives your credit card sales and splits them between your business checking account and the MCA provider. This delays your receipt of funds by one day.
The Automated Clearing House, or ACH, withdrawal method is typically the repayment process chosen by MCA providers when your business doesn’t do a large volume of credit card sales. They withdraw their repayment from your business checking account. It’s your responsibility to make sure the funds are available for withdrawal.
No.
You can apply online or by calling Shield Funding at (888) 906-1688
While it’s not a guarantee that they will pull your credit score, most providers will check it. You can get a soft pull request to establish your funding amount but before the contract loses there will be likely be a hard pull. A hard pull of your credit score can lower it by up to five points.
A. The minimum qualifications are:
B. For a merchant cash advance over $100,000 you will need the above documents in addition to these:
Yes, these loan products are ideal for small business owners with poor credit. Because the provider’s decision whether or not to advance funds is based primarily on credit card sales, your credit score is less important. Providers will work with borrowers who have credit scores as low as 500.
Usually not, although some of the more established lenders may be willing to offer a discount on a case by case basis.
Yes, if the holdback percentage is hurting your cash flow, or you need to extend the repayment period, a mca refinance could help your business. However, it will not reduce the amount you pay in total to the first merchant cash advance provider.
Because repayments are taken as a percentage of sales, the amount you pay on the merchant cash advance will be lower if sales decline. However, if this means the MCA isn’t paid off by the time the repayment term ends you may have to refinance it or make a lump sum payment.
This will depend on several factors, such as your sales and credit score. It is possible to get some of the most competitive rates in the entire industry, so call and speak to a representative.
When you sign your merchant cash advance agreement it can include a clause called a “confession of judgement”, or it may require a personal guarantee. With the confession of judgement, you waive your right to due process. This means that if you default on your MCA, there will be no court hearing or way to dispute any of the lender’s claims. A personal guarantee gives the provider the ability to go after personal assets – a house, car, or investment accounts – to recoup their losses. Be sure to go over any concerns before closing on a contract.
Unlike a traditional bank loan, MCA providers do not report on-time payments to credit bureaus. Your payment history will not help boost your score. However, they do report defaults.
Please see our article on mca pros and cons.
A merchant cash advance is a funding tool used by many businesses to meet capital needs. Like any type of loan or advance, it has pros and cons. It is not “bad,” per se, but small business owners should learn how a MCA will impact their business and have a plan to repay the advance.
