How To Get a Merchant Cash Advance
Merchant Cash Advance: Advantages and Disadvantages
While merchant cash advances can be great business funding for seasonal businesses or those looking for short term loan options, other financing products may be better-suited for certain initiatives.
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Is a Merchant Cash Advance a Loan?
Technically, a merchant cash advance is not a loan. With a merchant cash advance, a business owner sells a portion of their future credit and debit card sales for money they can use right away. The provider of the advance then collects a percentage of the business’s daily credit card sales until the amount of the advance, plus the factor rate, has been collected.
The percentage that is collected from the credit/debit card transactions is known as “holdback.” The business owner and the advance provider will also agree on a factor rate, or the amount the merchant satisfies in addition to the amount they were advanced.
Are merchant cash advances legal?
Merchant cash advances are not traditional loans – they are purchases of future payment receivables for an upfront, discounted purchase price. Because they are true sales and do not come from a traditional bank, there is no fixed payment or term, principal, interest, or interest rate involved and state usury and/or lending laws do not apply.
Do merchant cash advances hurt your credit score?
A merchant cash advance will not directly hurt your credit score or give you bad credit, but it could indirectly lower your score by raising your outstanding balance and your credit utilization ratio.
How much does a merchant cash advance cost?
Cash advances are priced as a total cost of capital with fees and factor rates included. Factor rates are typically based on the risk associated with funding your business.
Unlike many business loans, merchant cash advances do not require the business owner to provide any additional assets as collateral. This can be beneficial for smaller businesses who might not have major assets like real estate or vehicles to serve as collateral.
Is there a financial benefit to paying off a merchant cash advance early?
There is no financial benefit to repayment of a merchant cash advance early. Since you agree to pay a set percentage every day, you don’t have the benefit of paying less interest over time like you would with a traditional business loan.
What can you use a merchant cash advance for?
Funds from merchant cash advances can be used for many different purposes, but since it is a type of short-term funding, an MCA is best used for covering temporary cash flow shortfalls. Business owners often use merchant cash advances for things like buying inventory, paying employees, making emergency repairs, marketing expenses, purchasing equipment and other short-term expansion projects.
How do you apply for a merchant cash advance?
Applying for a merchant cash advance is a much simpler process than applying for a regular business loan or working capital. You’ll be asked to provide some basic information and documentation about your business, such as:
- Past bank and credit card statements
- A copy of your business lease
- Your business tax ID number
- Your personal social security number
- A copy of your driver’s license or another type of government-issued photo ID
- A copy of your business tax returns
Although merchant cash advances are often attainable for businesses with credit scores that prevent them from getting traditional business loans, that doesn’t mean your credit score isn’t a factor at all. Each merchant cash advance provider has different criteria they look for, but they generally do check your credit score before approving an application.
Applications for merchant cash advances are approved very quickly and once approved, business owners receive their funds within a matter of days. To learn how much you qualify for, fill out our online prequalification request. Submitting is free and easy and will not negatively impact your credit score.
* Bank statements from business banking account associated with the business.
** Factor rates are included in your daily estimate to simplify remittances and account monitoring. Best factor rates available to merchants with excellent credit and financial strength.
*** $15K+ avg. deposits for a three-month average and the most recent month. Rates, pricing, requirements and other terms and conditions subject to change without notice.