Merchant cash advances aren’t loans, they’re cash advances in exchange for a percentage of your debit and credit card sales. There’s no need for collateral, and it’s a quick way to get a cash advance for your business, even if you don’t have the best credit.
$2.5K - $250K
Paid daily through your merchant account
1.14 to 1.18
As FaaS as 2 days
How does a Merchant Cash Advance Work?
Merchant cash advances can help those without the best credit history. By agreeing to pay a percentage of your sales, you don’t have to prove your creditworthiness and you can receive funds quickly. Merchant cash advances are often, however, the most pricey option for business funding.
Pros & Cons
Pros of a Merchant Cash Advance
- Bad credit is usually acceptable
- Easy approval process
- Fast access to funds
- Used for a wide range of business needs
Cons of a Merchant Cash Advance
- Higher fees
- Daily deductions from your credit card receipts reduce cash flow
- Less Flexibility
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Who Qualifies for a Merchant Cash Advance?
Usually, businesses with little to no collateral, limited history or a lower credit score can still qualify for a merchant cash advance. Most providers have simple eligibility requirements. It’s a great way to finance if your business makes a lot of revenue on debit or credit card payments – such as a restaurant or boutique.
How Do You Apply a Merchant Cash Advance?
Merchant cash advance providers will look at your credit card processing statements to make sure that your business brings in enough revenue to pay them back. Some will look at your credit score but often won’t put too much weight on it. Their applications are often online, so the process is simple and quick – you can often be approved the same day you apply.
What You're Going to Need:
- Driver’s License
- Voided Business Check
- Bank Statements
- Credit Score
- Business tax returns
- Credit card processing statements
What Else Do You Need To Know About Merchant Cash Advances?
Merchant cash advances work best for companies that need funds quickly and don’t mind paying a percentage of their sales. The fundamentals you should know are:
- Your business can get the funds they need very quickly, especially if you use FaaSfunds.
- In return for that cash advance, you repay the lender with a percentage of your daily sales.
- Merchant cash advances make the most sense for businesses that handle a lot of credit card sales, like retail or restaurants.
- These can be paid back through Automated Clearing House withdrawals from your bank account.
- Merchant cash advances tend to be the most expensive options out there.
- Since the payback is based on a percentage of sales, the amount you pay back increases or decreases based on daily sales.
What is a Factor Rate?
Merchant cash advance lenders use factor rates instead of interest rates. Factor rates are usually given in decimal figures as opposed to percentages. They’re calculated by dividing the financing cost by the loan amount. When all the math is figured out, these tend to be much higher than loan interest rates.
Factor rates usually range from 1.14 to 1.48 and are determined by similar factors that determine interest rates for a loan – time in business, industry, sales, business credit – and also factors unique to cash advances, like average monthly credit card sales.
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How Long Do Merchant Cash Advances Take to Pay Off?
The average payoff time is around eight or nine months, but can be between four and 18 months depending on your business.
Merchant cash advances have some of the highest fees of any lending option, making them the most expensive option for financing your business. They do, however, offer some decent alternatives to taking out an actual loan.
First off, they’re quick. If you’re in a bind and need money to run your business, merchant cash advances will provide it quickly and relatively easy.
Getting a loan requires you to pay back the same amount each month, regardless of your sales. A merchant cash advance makes you pay a percentage of your sales, so during slower times you’ll pay a lower amount, and thus not cut into your cash flow as much.
Merchant cash advances are also unsecured – they don’t make you offer up collateral. This is valuable for business owners who don’t have the means to put their property on the line.
Always make sure you shop around to see if there are other borrowing choices for your business before you choose a merchant cash advance. FaaSfunds will help you with this choice by letting you view all of your options, and we’ll measure which can work best.
To make these fees more tangible, here’s how to calculate a factor rate:
To figure out how much you ultimately pay back to the provider, you should multiply the factor rate by the total cash advance amount.
So if your factor rate is 1.30 on an advance of $10,000, your total payback is $13,000.
This means that, if it’s being compared to an interest rate, you’re paying back 30% of the amount you borrowed. This may be worth it if you are in a business bind, but in the long run, you’ll be paying significantly more than a usual business loan.
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