A merchant cash advance can tide you over if you regularly process credit card payments and need some extra cash
If your businesses processes a good volume of daily credit card transactions, a merchant cash advance is one of the faster and more flexible ways to access some extra cash when you need it. Apply in minutes and we’ll sift through the options from banks and other lenders to find the money you need.
A merchant cash advance, sometimes also known as a business cash advance, lets you borrow against your future credit card transaction revenue.
Imagine this: you need some extra cash today, but you don’t have business assets that you can pledge as collateral for a standard business loan. Instead, you can ask for a cash advance from a lender now and repay it through a fixed percentage of your daily, weekly or monthly credit card payment receipts. If business grows, you will repay the advance more quickly. If things are slow, you get more time. It’s a fast and flexible solution for many small businesses in areas like food and beverage, retail and leisure.
Any business that receives payment via a card terminal may qualify for a merchant cash advance. Because the lender works with the card terminal provider that processes your transactions, they can easily see the volume of card payments your business receives. The lender uses this information to calculate the sum they will lend and a plan to pay back the loan.
Because the loan and repayment plan are based on the volume and value of your transactions, merchant cash advances adapt to the way your business operates. The percentage of customer receipts you pay to the lender does not change, but the sum you repay daily, weekly, or monthly, does. It will fluctuate to match your card payment income. This flexibility can work particularly well for businesses with variable or seasonal income.
Merchant cash advances make repayment simple. The repayments are taken “at source,” which means they are sent directly to the lender by your card terminal provider.
How much you can borrow will depend on factors such as how much credit card business you process and the total amount the lender is confident you can comfortably afford.
Technically, all types of borrowing for a small business or startup can be considered a business loan, but merchant cash advances differ from standard business loans in several ways.
For one thing, a merchant cash advance is unsecured. That means it does not require collateral such as inventory, equipment or real estate to back the loan. The money is lent to your business and you pay it back as a percentage of your card payment income. The volume of your card payments and the amount of money your business makes are what determine whether you qualify and how much you can borrow.
Another difference is in how merchant cash advances can adapt to your business. As you grow, you repay faster. During lulls, you repay slower. The time it takes to clear the loan is determined by the performance of your business. However, like other loans, a merchant cash advance does have a final date for full repayment of the loan. This can be anywhere from a few months to a few years in the future. Finally, standard business loans can come with hefty late charges or penalties for early repayment. A merchant cash advance does not. Because repayments are automatically deducted from your daily, weekly or monthly card transactions, it is not possible to be late, so there can be no late charges. If your small business or startup grows rapidly, you’ll pay the loan back sooner without worrying about penalties.
You can use a merchant cash advance for just about any legitimate business purpose, including:
In short, if your small business or startup needs money to grow, a merchant cash advance could work for you.
A restaurant had to make some unplanned renovations in order to comply with new Covid-19 pandemic regulations. A merchant cash advance was the perfect way to get some extra cash on short notice, and the renovations will help him accelerate his sales and speed up his repayments.
A hotel wanted to take advantage of an upcoming holiday period to attract more customers. They used a merchant cash advance to fund an online advertising campaign, which should help them book more rooms and repay the advance ahead of schedule.
A spa is interested in acquiring new equipment that will allow them to offer additional services and generate more revenue per customer. A merchant cash advance was a flexible way to get the money they need right now and pay it back our of future sales.
There are many potential benefits, including:
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Here are a few potential downsides to a merchant cash advance that you might want to consider:
Calculate your merchant cash advance repayments using the calculator below. Enter the amount you would like to borrow, the factor rate, and the amount your business takes in card sales each month to see an example repayment amount.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
Total loan repayment
Daily average repayment
Repaid in (approx.)
The number one requirement for a merchant cash advance is an established history of processing a steady flow of credit card transactions. When you apply, you will likely be asked to provide several months of card transaction history as well as bank statements.
Another requirement is a completed application form, but this is usually relatively short and simple, and approval times are often quick – sometimes as short as 24 hours.
In some cases, you may be required to switch card terminal providers. Although this step is inconvenient, it can be a condition of approval from some lenders. It is definitely not always required.
A merchant cash advance does not have an interest rate in the usual sense. Instead, you pay a fee of a certain number of cents per dollar borrowed. This is usually expressed as a “factor rate.” For example, a fee of 20 cents per dollar is expressed as a factor rate of 1.20.
To see how much you will have to repay, multiply the amount you borrow by the factor rate. For example, if you were to borrow $5,000 at a factor rate of 1.20, you would be required to repay $6,000. This is calculated as $5,000 x 1.20 = $6,000.
The factor rate of your merchant cash advance will generally be set somewhere between 1.07 and 1.35, depending on the size and stability of your business, the volume of your transactions, the value of your transactions, and other factors that may be unique to each lender.
The factor rate is the fee charged by the merchant cash advance provider. Unlike an interest charge, that may be variable, the factor rate is set at a fixed number of pennies per dollar borrowed. For example, a fee of 20 cents per dollar is expressed as a factor rate of 1.20.
The factor rate is set at the time the loan is made and will not change over time. This is different than some loans or lines of credit, where the interest rate can fluctuate over time.
A merchant cash advance repayments are set as a percentage of each card transaction – for example 10%. Increased card payments will result in a larger repayment, which will pay the loan off faster. Less card payments will generate a smaller repayment and extend the time it takes to pay down the debt.
In many cases, yes. Because merchant cash advances are granted based on business performance and card turnover, bad personal credit is often not a problem. If you’ve been turned down for other types of funding, you may still qualify for a merchant cash advance.
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Possibly, since lenders place more value on the credit card transactions in your business than on your personal credit. However, since a merchant cash advance is an unsecured loan, many lenders will still want to do a “soft” review of your credit rating. If there are serious concerns about your ability to make payments, the lender may request a full credit check.
Probably not. Although lenders will look at your card payments volume and history first, you must expect to show some financial records. This could mean bank statements and/or documentation related to your cash flow, balance sheet or tax returns.
Although each lender is different, they are all seeking to identify risk. The more information they have about your business, the more accurate their offer will be. If your company is a startup, or if you don’t have adequate business financial records, your personal tax returns may help the lender make their decision.
When a borrower fails to make payment on a loan, the lender has options to retrieve their money such as a civil law suit. This could lead to a loss of business property, a bad credit rating, or even bankruptcy. A merchant cash advance is no different. And, if you have provided a personal guarantee, the lender may take possession of the asset you have pledged assets to satisfy the loan.
One of the main alternatives to a merchant cash advance is a secured or unsecured business loan. With a secured business loan, you pledge an asset such as a vehicle, equipment or real estate as collateral for the loan. This gives the lender greater security, which can be beneficial in terms of a lower interest rate and longer period of time to repay the loan. With an unsecured business loan, you are not required to provide collateral, but may by charged a higher rate of interest and have less time to repay the loan.
As long as you have a reasonable volume of card payments, enough profitability to repay the loan, and bank statements or other financial documentation to provide supporting evidence, you may be able to apply for a merchant cash advance and receive funding in as little as a day or two.
However, there are many lenders out there and it can be a lot of work to reach them all one by one. Join Swoop and we will find some of the best merchant cash advance options for you within minutes.
Michael David is a financial writer and former investment advisor. Writing for Capital Group, Dimensional Fund Advisors, Franklin Templeton Investments, HSBC, Invesco, PIMCO, Vanguard, global insurance companies, major Canadian banks and others, he has educated professionals, business owners and consumers about strategies for investing, insurance, banking and corporate finance for more than 20 years.