Merchant Cash Advance Guide for Small Businesses

Ideally,Small businesses will fund their operation through their income stream. However, companies face fluctuations. For example, demand picks up for services and goods during the holiday shopping season.

Other companies face different kinds of seasonality. For some, demand also picks up during the back to school shopping season.

When companies need an immediate infusion of capital, many turn to loans. The major downside to acquiring debt is the interest rate charges, paperwork, and timeline. Plus, during a down economy, it’s tougher to obtain them.

Moreover, lenders place several restrictions on the debt. The lenders maintain the right to call in their loans. That puts the borrower in a financially precarious situation.

Entrepreneurs must find their creativity when funding companies. Several alternatives exist to the business loan including grants, venture capitalists, and lines of credit.

In addition, entrepreneurs can look into merchant cash advances.

We offer a brief merchant cash advance guide for small businesses to consider.

What Is Merchant Cash Advance for Small Businesses?

This funding strategy is an alternative form of financing. As the economy evolves and lenders adapt, they offer non-conventional financial products too.

Companies apply for the funding through providers. Sometimes banks offer them. Usually non-bank lenders issue them too.

The owner fills out the application. Then, the lender’s team reviews it. The team must learn about the company’s accounts receivable. They want to understand the number of sales the company earns consistently.

If they approve the funding, the lender takes a percentage of future sales. In return, the applicant receives a lump sum of cash upfront.

For a more in-depth analysis of merchant cash advances, check out the analysis provided by Now Corp.

How Does Merchant Cash Advance Work?

Once the lender approves the financing, they outline the repayment terms.

The process is similar to applying for a  business loan. However, it has far fewer restrictions and requirements. For example, individuals who have bad credit can apply.  Since the lender takes a percentage of sales, the sales act as collateral.

If the business owner fails to repay the financing, the fees and interest rate charges help them recoup the bulk of it.

Merchant cash advances are also similar to payday loans. Payday loan service providers issue funds to applicants on the spot. The provider requests the applicant’s paystubs. Based on the information that they see, the service provider offers between $50 to $1,000. The exact amounts depend on the applicant’s income and state laws.

The difference between a payday loan and a merchant cash advance is that the latter helps companies. The amount lent to a company ranges between $2,500 and $500,000, subject to state laws.

How Does a Small Business Apply?

The best way to apply for a merchant cash advance is to meet with a lending representative. You can also find online providers. Then, fill out the application and apply.

Since this is not a business loan, the application process is much faster and easier. Lenders don’t look at credit scores or bank statements.

As mentioned earlier, they simply take a look at the company’s accounts receivable. Therefore, the applicant can fill out and submit the paperwork in minutes.

When you apply, ensure that you have your official identifying business documents with you for verification purposes; just in case.

Is This Strategy a Good Fit for My Company?

All financing options have a set of pros and cons. If your company requires capital promptly, it’s a financing strategy to consider. Moreover, if the owners have less than perfect credit, the financing does not require a credit score check at all.

For lenders, this is a risky proposition. A borrower might not repay the funds. Therefore, they charge higher interest rates and fees than business loans. The deduction percentage averages 10% of sales with a payment period of three to 12 months. Interest rate charges start at 1%.

Borrowing money always has fees attached. If the borrower believes that they can repay the funds quickly, it’s a good fit in many situations.

What Are the Benefits of Merchant Cash Advance?

Running a company is no Small businesses task. You must balance income and expenses. Plus, your employees depend on you.

Merchant cash advances offer a few benefits including receiving a lump sum of funds quickly. The process moves efficiently and the lenders do not require a thorough financial background check.


Business owners must figure out how to keep their company afloat financially. The most common financing option is the business loan. However, merchant cash advance offers an alternative. Most can obtain an immediate infusion of capital.

Related Articles

Back to top button