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Merchant Cash Advance

A merchant cash advance is an alternative financing option if you can’t get a traditional loan. These types of funding allow your business to sort pressing financial obligations and focus on its core operations. But just like any other type of borrowing, some things need to be considered before taking out an MCA.

By definition, a merchant cash advance is the amount of money a business owner borrows against the revenue from future credit card transactions. The amount borrowed and an agreed service charge are paid back in line with his business growth. Therefore, the more sales and revenue he generates, the quicker he completes the cash advance payment.

This article will enlighten you on what you can use an MCA for, how to get a cash advance, and lots more. To begin, let’s understand how this type of advance works.

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How Does a Merchant Cash Advance Work?

Here is how it works. The lender checks how much revenue you generate through your credit card provider and past receipts. He then uses the information to determine how much cash advance he can lend you. You both can then agree on the service charge and the percentage of your revenue the lender will take. This could be daily, weekly, or monthly till all the amount you borrowed is fully paid.

Let’s say you got a cash advance of $12,000 at a service charge of 30%, which is $3600. The total amount due for payment will be $15,600. So, if you make about a thousand dollars weekly and the agreed payment plan is 20% of the weekly generated revenue, then $200 goes to your lender. If you make about $1500 in another week, then $300 goes to your lender that week.

So, the agreed payment percentage is unchanged irrespective of the amount of revenue generated. The more revenue is generated, the quicker the merchant pays up the cash advance borrowed and vice versa.

Therefore, without collateral, your lender is sure to get his money. This is because your credit card provider deducts the agreed revenue percentage and pays him directly.

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The Differences Between a Cash Advance and a Business Loan

A merchant cash advance is quite different from a standard business loan in some ways. They are as follows:

It is not Secured

To get a business loan, you need to provide collateral as a form of security for your lender’s money. This could be real estate, cars, precious gemstones, etcetera. However, a cash advance is unsecured as it does not require any form of collateral.

Payment is not Time-Bound

The payment of business loans is per a stipulated period indicating when you should fully pay the loan. Failure to comply on your end amounts to a penalty. However, a merchant advance has no stipulated time when the amount borrowed must be fully paid. Payment is always timely since the money is deducted from your credit card provider.

Payment is Flexible

Whether your business grows or lags, you must meet the agreed payment plans of business loans. Where you fail to meet up, the interest rate begins to increase. For merchant advance, the payment plan is flexible; it increases with your business’s growth and vice versa.

Higher Rates

A merchant cash advance has a higher rate (service charges) than the interest on business loans. Sometimes, the borrower pays two times the amount of interest for a business loan when he opts for a cash advance.

It is Faster

An MCA is faster than obtaining a business loan, which can take days or even weeks to complete. You can apply for a cash advance and complete the entire process within a day.

Uses of Merchant Cash Advance

Provided your business is legal, you can use an MCA for whatever your business needs to grow and survive. These include but are not like to;

  • Payment of taxes.
  • Hiring personnel.
  • Training staff.
  • Advertising
  • To cover the shortage of cash flow.
  • Making renovations.
  • Buying equipment.

This applies to both business start-ups and those who have advanced in the business.

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Where to Get a Merchant Cash Advance

The following are go-to agencies for cash advances if you need emergency cash for your business.

1.  Smarter Loans

Smarter Loans was founded by Rafael Rositsan in 2016. This lending agency provides business cash advances and both personal and business loans to people. They have their headquarters in Great Lakes. To access their loan, you can fill out their online application form. Please note that the maximum cash advance that you can get from them is $500,000.

2.  Loans Canada

Loans Canada is an online finance forum that connects intending borrowers to available lenders within Canada. It was founded by Scott Satov in 2012. The process of getting an available lender is simple. All you need to do is fill in your details on their application form, and they will immediately link you to a lender. You can get a cash advance of up to $500,000 for your business using Loans Canada.

3.  Forward Funding

Forward funding is another lending agency in the fintech industry. They pride themselves on their quick delivery, flexible payment option, and a high cash advance of up to $500,000. This platform might be great for a business owner who needs quick cash to expand the business or make renovations.

To access cash advance from Forward Funding, you have three options. You can either send them an email, call their customer care line, or fill out their online loan application form.

4.  Sharpshooter Funding

Sharpshooter Funding is an online finance platform that helps business owners access funds. Their target audience is people who are unable to access a bank loan. Sharpshooter gives cash advances to business owners irrespective of the type of business, provided it is legal and profit based.

To access a sharpshooter’s cash advance, you must fill out their online application form. You will fill in the details of your average monthly revenue, business plan, and the exact amount you need. Suppose your business is not yet off the ground, but your idea has been carefully crafted into a business proposal. In that case, you can get a cash advance. Sharpshooter provides about $150,000 advance as working capital for business start-ups.

A good credit score would improve your eligibility status. However, you can get a smaller amount at a higher service charge if you have a low credit score.

5.  Accord Financial

Accord Financial is another lending platform where you can get business cash advances. They have their headquarters in Westmount in Quebec. They have branches across other provinces in Canada and USA. You can get a merchant cash advance of up to $30,000,000 to fund your business.

To access this fund from Accord Financial, simply fill out their application form online and await approval. However, you need to first meet their eligibility criteria which include:

  • Your business should be located in one of the provinces in Canada.
  • Your business must be firmly rooted and should indicate growth – a good return on investment.
  • Your establishment should have about two years of existence.
  • You should be generating an annual revenue of about $100,000.
  • You should have a good credit score and rating.
  • Your business should have a bank account.
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The Law Binding on Merchant Cash Advance

Merchant cash advances are not regulated by the laws binding on standard business loans. This means the lender can decide whatever percentage of the amount they’ll take as interest (service fee). This is why the rates on cash advances are mostly higher than on business loans.

Types of Merchant Cash Advance

There are two types of cash advances: payday loans and credit card cash advances.

Payday Loan

You can get this type of cash advance to sort emergencies if you earn a wage or salary. Still, you must make repayments on your payday, along with the service fee (interest).

Payday loans are not available in all countries. However, they are accessible to residents of Canada, the US, and a handful of other countries. The service charge ranges between 15% and 25% of the cash advances given. It has the following advantages.

  • It is easily accessible. This is because you can get the money within 60 minutes of sending the application.
  • Application is easy. Sometimes, all that is required is a quick phone call to the lender, and your account gets credited. You may have to visit the branch or fill out an online application form with some other lenders.

Some of the payday’s notable shortcomings include:

  • It is easy to fall into the hands of scammers when seeking a payday loan. To stay safe, you might want to double-check the license details of your proposed lender before striking a deal.
  • The period for paying back the advance is little. You have just 62 days maximum payment time or your next payday after taking the advance.
  • A very high annual interest rate can be as much as 400%.

Credit Cards Cash Advances

This is the most typical type of cash advance that business owners go for. In this case, the advance given is paid back with a percentage of the future credit card transactions. It has a lower annual interest rate compared to the payday loan. Although, the interest rate is still way higher than the standard business loans.

Notable Terms When Getting a Cash Advance

If you are ready to get cash for your business, do take note of the following terms:

Factor Rate

This is the service charge you pay your lender and the amount loaned to you. Unlike traditional loans that have stated interest rates, cash advances come with service charges. These charges are stated in cents per dollar borrowed. So, if your lender charges you 25 cents per dollar, your factor rate will be 1.25.

Loan Amount

This is the total amount borrowed from a lender as a merchant cash advance. For standard loans, it is termed as the principal amount. For payday loans, the maximum loan amount is about $1,500. While the maximum loan amount for a credit card cash advance can be up to $30,000,000, depending on the choice of lender.

Loan Term

This is the period for which paying back the loan amount and factor rate lapses. Although credit card cash advance is primarily flexible without a standard loan term, payday loans lapse on the payday or 62 days after receiving the advance.

How to Get a Merchant Cash Advance

The entire process of applying to receive the funds when seeking a merchant cash advance is short. You can complete it within 60 minutes or up to a few days. This is why some business owners who would have been able to access bank loans go for an MCA during emergencies. Here is the general procedure for getting a cash advance.

Application

The methods of application vary from one lender to another. For some, like Forward Funding, you can simply fill out an online application form. For some others, you may need to visit their office to apply.

Documentation

Your lender will want to access documents like credit card payment receipts of up to 6 months and above. They might also require the bank statements of previous months. You should be prepared to upload these documents if you are applying online.

Approval

Your cash advance can get approved within a day, depending on the choice of the lender.

Switching Credit Card Processor

You might need to switch your credit card processor to complete the process. Although, this is not a general prerequisite for all lenders.

Agreement

The agreement documents, which state the terms and conditions of the cash advance, will be signed by you and the lender. You might want to read it carefully before signing.

Get Funded

The funds will be wired into your chosen bank account then your card processor deducts the agreed payment percentage of your revenue to your lender. This continues till you pay all your debt.

Eligibility for a Merchant Cash Advance

The following makes your business eligible for a merchant cash advance.

Business License

Lenders want to transact with legal business alone. So, they might check your business license before approving your cash advance application.

Business Duration

The longer you are in business, the easier it is for you to get an MCA. A few lenders, such as Sharpshooter Funding, give cash advances as working capital to business start-ups. Others require a minimum of 6 months of business duration.

Revenue

The total amount of revenue your business generates monthly or annually determines your eligibility for a certain amount of MCA. Some lenders like Accord Financial require a minimum of $100,000 annual revenue to qualify for MCAs.

Transaction History

Lenders check your credit card transaction histories and bank statements before approving MCAs. Some lenders might want to observe your revenue for about one month after applying to ascertain revenue generation.

Amount of Cash Advance

Your MCA request might not be approved if the amount of cash advance you are applying for does not meet the required revenue generation. In some cases, you might decide on a lower MCA amount.

Substitutes for Merchant Cash Advances

If you are worried about the high-interest rates of MCAs, here are other options for getting emergency cash.

  • Standard Business Loans
  • Low-interest credit card
  • Bad credit loan
  • Line of credit
  • Secured loan
  • Guarantor loan

Merchant Cash Advance Conclusion

Merchant cash advances are life savers for businesses in emergencies. You might want to compare the approved lenders in your state before deciding which is excellent for your business.

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Offers shown here are from third-party advertisers. We are not an agent, representative, or broker of any advertiser, and we don’t endorse or recommend any particular offer. Information is provided by the advertiser and is shown without any representation or warranty from us as to its accuracy or applicability. Each offer is subject to the advertiser’s review, approval, and terms. We receive compensation from companies whose offers are shown here, and that may impact how and where offers appear (and in what order). We don’t include all products or offers out there, but we hope what you see will give you some great options.

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FAQs about Merchant Cash Advance

Can you Get a Merchant Cash Advance with a Bad Credit Score?

Merchant cash advance lenders do not consider credit scores a requirement for funding your business. So, a bad credit score does not affect your eligibility for MCAs.

Is Merchant Cash Advance a Better Option to Business Loans?

Both MCAs and business loans have their pros and cons. While a bad credit score is okay for getting a merchant cash advance, business loans come with lower interest rates.

Does Merchant Cash Advance require collateral?

A merchant cash advance does not require collateral. The lender simply needs to ascertain that your business has a good flow of credit card transactions.

How Much Cash Advance can a Business Get?

Many lenders, such as Smarter Loans, offer business cash advances of up to $500,000.

What is the Average Factor Rate?

The average factor rate for MCAs is between 8 cents to 30 cents per dollar. This implies a 1.08 to 1.30-factor rate.

What is the Maximum Loan Term for MCAs?

Merchant cash advances are paid back daily, weekly or monthly as agreed with your lender from your revenue generation. This means that the more revenue you generate, the quicker you pay up your debt and vice versa.

Is MCAs Legal?

Yes, MCAs are legal in many countries, including Canada and the US. However, it is illegal in countries like UAE, where usury is prohibited.

What are the Shortcomings of a Merchant Cash Advance?

The significant shortcomings of an advance are the high-interest rates in the guise of the service charge that it comes with.

Can I Get MCAs Without a Credit Check?

It is unlikely to get MCAs without credit card checks. Your credit card transaction history is the means by which your lender gets to know how much revenue your business generates.

Can I Access MCAs Without a Bank Statement?

It is unlikely to get a cash advance without a bank statement. Bank statements are part of the basic requirements for getting MCAs.

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