Merchant Cash Advance

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Merchant Cash Advance is a financing option for small businesses in which a merchant account provider pays a one-time lump sum to a merchant in exchange for a percentage of future credit card sales. This percentage of sales is collected by the credit card processor until the initial amount plus interest is repaid in full.

Because a Merchant Cash Advance is technically classified as a sale of a portion of future sales compared with a conventional loan, it is not subject to interest rate regulation. As a result, the interest paid on a Merchant Cash Advance can be much higher than the interest typically paid on a small business loan.

 

Average Loan Amount

$5K-$5M

Loan Term

5-25 Years

Loan Term

5-25 Years

Average Loan Amount

$5K - $250K

Loan Term

4 - 18 Months

Factor Fee

Starting at 1.14%

Time Needed

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How to Apply?

Merchant Cash Advances are generally marketed to business owners who are unable to attain traditional small business loans due to poor individual credit histories and payments. They allow a merchant to obtain access to cash much more quickly than a traditional loan, and their repayment method allows for some flexibility over time. Merchant Cash Advance payments are typically withheld seamlessly by the credit card processor, much like normal credit card processing fees and standards.

If your business fulfills the following minimum requirements, then you should seriously consider applying for merchant cash advance funding.

Documentation Needed:

  • Application

  • 3 months of Business Bank Statements

Qualifications:

  • 6 months in business

  • 480+ minimum credit score

  • $8,000 in monthly revenue

Merchant Cash Advance

Merchant cash advances are most often used by retail businesses that do not qualify for regular bank loans and are typically more expensive than bank loans.  Competition and innovation led to downward pressure on rates and terms are now more closely correlated with an applicant's FICO score to qualify.
 

There are typically three different repayment methods
 

  • Split withholding - When the credit card processing company automatically splits the credit card sales between the business and the finance company per the agreed portion.  This is generally the most preferred method of collecting funds for both the clients and finance companies since it is seamless.

  • Lock box or trust bank account withholding - All of the business's credit card sales are deposited into a bank account controlled by the finance company and then the agreed upon portion is forwarded onto the business bank account.  This is the least preferred method since it results in a day delay in the business receiving the proceeds of their credit card sales.

  • ACH withholding - When structured as a sale, the finance company receives the credit card processing information and deducts its portion directly from the business's checking account. When structured as a loan, the finance company debits a fixed amount daily regardless of the business sales.

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