An instant merchant cash advance is a type of financing that provides businesses with quick access to cash, typically within 24 hours.
This type of financing is often used by businesses that need a short-term influx of funds to cover unexpected expenses or capitalize on new opportunities.
Businesses can apply for an instant merchant cash advance through a lender or a financial services provider, who will then review their creditworthiness and approve the loan amount based on their average daily credit card sales.
The loan amount is determined by a percentage of the business's average daily credit card sales, typically ranging from 50% to 150% of their daily sales.
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What Is Instant Merchant Cash Advance?
A merchant cash advance, or MCA, is a type of funding that provides a lump sum payment in exchange for a predetermined amount of your business's future credit and debit card sales.
You receive the upfront payment, but you'll have to use a portion of your future credit card sales revenue to repay the advance, plus a fee. This fee is not expressed as an interest rate or APR, but rather as a factor rate, which can range from 1.1 to 1.5.
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Merchant cash advances are designed for businesses with bad credit histories or no established business credit. They're often referred to as alternative small business financing.
The repayment of a merchant cash advance is typically drawn directly from your business's card processing merchant account daily or weekly. This can reduce your future cash flow.
A merchant cash advance may involve one or more fees, including a factor rate, which can be confusing and misunderstood. It's essential to understand the costs and repayment terms before applying.
Businesses that average a minimum of $7,500 per month in sales over the last three months typically qualify for an MCA equal to 70-120% in funding, from as little as $3,000 up to $500,000.
Merchant cash advances offer flexibility in repayment schedules, with some providers offering fixed and flexible repayment options.
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Qualifications and Requirements
Instant merchant cash advances are a popular funding option for businesses that need quick access to cash. You can get approved for an instant merchant cash advance with a credit score above 525 and two years of business history.
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To qualify, you'll need to provide certain documents, such as your driver's license or passport, three or more months of credit card processing statements, and one or two years of business tax returns. Some providers may also require a voided business check.
Your business must accept credit and debit card payments to qualify for an instant merchant cash advance. No collateral is required, making it a more accessible option for businesses with limited assets.
The amount of cash you can receive with an instant merchant cash advance can range from $5,000 to $500,000 or more, depending on your business's credit card sales volume and cash flow.
Here are some general guidelines for instant merchant cash advance qualifications:
Keep in mind that each provider may have slightly different requirements, so it's essential to check with the lender before applying.
The Costs of
You'll typically need to repay the full amount of the advance, plus a fee, which can be a percentage of the loan amount. This means that if you're approved for a $20,000 cash advance with a factor rate of 1.4 and a fee of $500, you'll owe $28,500.
Repayment periods are often short, ranging from 3 months to 12 months, and you'll need to pay a percentage of your credit card sales to repay the total amount owed. This can be a significant burden, especially if your business experiences a slow period.
The percentage of credit card sales you'll need to pay back will depend on the terms of your agreement. In one example, a business owner was required to pay 15% of their $50,000 per month in credit/debit card sales, which worked out to $7,500 per month.
The cost of an instant merchant cash advance can be high, but it may be attractive to businesses that need immediate cash to cover an unplanned expense or take advantage of a profit-making opportunity.
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Pros and Cons
A merchant cash advance can be a valuable financing tool for some businesses, but it's essential to consider the pros and cons before making a decision.
Approval rates as high as 90 percent make merchant cash advances an accessible type of business financing for bad credit borrowers. MCAs may take businesses with credit scores in the 500s.
The pros of a merchant cash advance include a fast application process, typically done online with supporting documentation, and fast decisions, with funds usually received within days or up to one week. No collateral is required, and most MCAs are unsecured, relying on proceeds from credit card payments.
Here are some key pros and cons of instant merchant cash advances:
- Approval rates as high as 90 percent
- Fast funding, usually within 24 to 48 hours
- No collateral needed
- Daily or weekly repayments
- Factor rate fees can cost more than conventional loans, translating to interest rates of 50 percent to 100 percent or higher
- No fixed payment, so if your sales are higher, your payments will be higher
Pros and Cons
Merchant cash advances can be a valuable financing tool for some businesses, but it's essential to weigh the pros and cons before signing away a slice of your credit card sales.
Approval rates for merchant cash advances can be as high as 90 percent, making them an accessible type of business financing for bad credit borrowers.
Fast funding is another advantage of merchant cash advances, with most MCAs offering funding within 24 to 48 hours.
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You won't need to provide collateral to secure a merchant cash advance, as the financing company will use future revenue to guarantee repayment.
However, daily or weekly repayments can be aggressive, and you'll be on the hook until the advance is fully repaid.
Factor rate fees can cost more than conventional loans, translating into interest rates of 50 percent to 100 percent or higher.
Merchant cash advances don't report your payments to the credit bureaus, so you won't improve your credit through this financing option.
The fees paid on a merchant cash advance can be extremely high, with typical Annual Percentage Rates well into the triple digits.
Here are some key points to consider:
- Approval rates: up to 90 percent
- Funding time: 24-48 hours
- Collateral: no collateral required
- Repayment schedule: daily or weekly
- Factor rate fees: 50-100 percent or higher
Flexible Payments
Flexible payments can be a game-changer for businesses, allowing them to make payments based on a percentage of their credit card sales or other revenue receivables.
This means that businesses only pay for what they've actually earned, which can be a huge relief for cash flow.
Payments are calculated based on a percentage of the business' credit card sales or other revenue receivables, making it a flexible and adaptable payment system.
This can help businesses avoid large upfront payments or fixed fees that can be a burden on their finances.
Here are some key benefits of flexible payments:
- Payments are calculated based on a percentage of the business’ credit card sales or other revenue receivables
Alternatives to Instant Merchant Cash Advance
If you're looking for alternatives to instant merchant cash advance, consider invoice financing. This option allows you to borrow against outstanding invoices, with interest rates similar to those of instant merchant cash advances.
Invoice financing typically requires a minimum of 5-10 outstanding invoices to qualify, and you'll need to factor in a 10-20% interest rate on borrowed funds.
Some businesses may qualify for a line of credit, which can provide access to a larger pool of funds than an instant merchant cash advance. This option can be more flexible, with some lenders offering variable interest rates.
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Lines of credit often require a minimum credit score and a solid business history to qualify, and interest rates can range from 6-20% APR.
Alternative lenders like Fundbox and BlueVine offer short-term loans with lower interest rates than instant merchant cash advances. These loans are typically repaid within 3-12 months.
Fundbox loans, for example, come with an interest rate of 4.66% and a 12-24 week repayment term, while BlueVine loans have an interest rate of 4.8% and a 6-9 month repayment term.
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Application Requirements
To get an instant merchant cash advance, you'll need to provide certain information and documents. The requirements can vary between providers, but most will ask for your driver's license or passport to prove your identity.
You'll also need to provide three or more months of credit card processing statements, which will help the lender determine if there's enough volume to justify an advance. This is a crucial factor in getting approved.
Some lenders may require one or two years of business tax returns, while others may ask for recent business bank account statements. A voided business check is also often requested.
Your credit score will also be taken into account, with a score above 525 making you more likely to get approved. This is because lenders want to ensure you can afford to pay back the advance.
Here are the common documents you'll need to apply for an instant merchant cash advance:
- A valid form of identification
- Three or more months of credit card processing statements
- One or two years of business tax returns
- Recent business bank account statements
- A voided business check
Keep in mind that some lenders may require additional documents, such as a business plan or financial statements. It's essential to check with the lender beforehand to ensure you have everything you need.
If you're looking for a more flexible approval process, consider working with a lender that focuses on the overall health of your business, rather than just your credit score.
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Funding and Restrictions
Instant merchant cash advances can provide businesses with access to funds in as little as 24 hours, but there are some restrictions to be aware of.
Businesses must have a minimum credit score of 500 and a minimum monthly revenue of $15,000 to qualify for an instant merchant cash advance.
Interest rates can range from 20% to 40% per year, and fees can add up quickly.
Repayment terms typically range from 3 to 18 months, and the lender will take a percentage of daily credit card sales until the loan is paid off.
Businesses with poor credit or high risk may be subject to higher interest rates or stricter repayment terms.
Lenders may also require a minimum number of credit card transactions per month to qualify for an instant merchant cash advance.
Repayment amounts are typically a fixed percentage of daily credit card sales, which can be a challenge for businesses with fluctuating sales.
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Rapid Finance
Rapid Finance is a great option to consider for an instant merchant cash advance. They offer fast and flexible funding to small businesses, providing access to working capital to supplement cash-flow gaps and facilitate short-term needs.
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Their application process is quick and convenient, allowing you to complete it through their online portal in just a few minutes. This makes it easy to get the funding you need when you need it.
Merchant cash advance amounts start at $5k and range up to $500k, so you can get the amount that's right for your business.
Calculator
The Calculator is a useful tool for estimating your instant merchant cash advance options. It's an approximation, so you'll want to apply now for a tailored funding calculation and a precise assessment of your business funding options.
The figures provided by the Calculator are just that - estimates. You can't rely on them for a final decision, but they can give you an idea of what to expect.
Applying now for a tailored funding calculation will give you a more accurate picture of your business funding options. This is especially important if you're considering an instant merchant cash advance.
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Bad Credit Loans
You may be able to get a merchant cash advance with bad credit if your business has strong cash flow.
Alternative lenders like Greenbox Capital have lower credit score requirements, typically starting around 550.
Businesses with low credit scores can explore other options like merchant cash advances, invoice factoring, and other alternative small business funding.
Term Loans
Term loans can be a viable option for businesses with bad credit, offering a lump-sum payment upfront with fixed repayments over a short time period, usually six to 24 months.
Short-term loans are often offered through online lenders with streamlined applications and quick funding speeds, making them a good option for businesses that need cash quickly.
Asset-based loans are secured by the value of assets, rather than cash flow, which makes them more accessible to businesses with less-than-perfect credit.
Businesses can use accounts receivable, inventory, equipment, real estate, and even intellectual property as collateral for asset-based loans.
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Bridge loans are short-term loans designed to cover financial gaps temporarily until your business finds other financing, but may come with higher interest rates.
Equipment loans offer payment to purchase, upgrade or refinance commercial equipment, and may have interest rates as low as 5 percent.
SBA loans are backed by the U.S. Small Business Administration and often come with long repayment terms and low interest rates, helping to make repayments manageable.
Here are some key features of the different types of term loans:
Bad Credit Loans
You can get a merchant cash advance with bad credit if your business has strong cash flow. Alternative lenders like Greenbox Capital have lower credit score requirements, typically starting around 550.
Businesses with low credit scores can consider alternative small business funding options like merchant cash advances, invoice factoring, and other non-traditional loans.
Having a strong cash flow can make it easier to qualify for bad credit loans, even with a low credit score.
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Alternative lenders often have more flexible requirements than traditional banks, making it possible for businesses with bad credit to get the funding they need.
If your business has a good cash flow, you may be able to get approved for a merchant cash advance, even with a credit score as low as 550.
MCAs: Why They're Expensive
Merchant cash advances, or MCAs, can be a costly option for businesses in need of quick funding. Factor rates are a major contributor to the high cost of MCAs, often exceeding other types of business financing.
A factor rate of 1.4 on a $100,000 cash advance translates to an annual interest rate of 34 percent. This is a significant burden for businesses, especially those with limited cash flow.
Monthly payments on an MCA are typically due quickly, often within 14 months, which can be challenging for businesses to manage. This can lead to cash flow problems and further financial strain.
The comparison to a short-term loan with a 34 percent APR for one year is striking. With more time to pay off the loan, monthly payments would be smaller, and overall borrowing costs would be lower.
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Flexible Payments
Flexible payments are a key feature of instant merchant cash advances. They're calculated based on a percentage of your business' credit card sales or other revenue receivables.
This means you can expect to pay back a portion of your revenue, rather than a fixed amount. Payments are typically calculated as a percentage of your daily or weekly sales, making it easier to manage your finances.
If you have a business that generates a lot of credit card sales, this could be a great option for you. Payments are flexible, so you can adjust to changes in your business' revenue.
Here's how it typically works:
- Payments are calculated based on a percentage of your business' credit card sales or other revenue receivables
Frequently Asked Questions
Are merchant cash advances illegal?
Merchant cash advances are not necessarily illegal, but their legality depends on the state and whether the lender has a written contract and necessary licenses. Some states, like California, allow MCAs to operate lawfully with proper licensing.
Can you write off a merchant cash advance?
Merchant cash advance fees may be deductible as a business expense, but it's essential to consult a tax professional to confirm eligibility and proper documentation
Sources
- https://www.lendzi.com/small-business-loans/merchant-cash-advance/
- https://www.bankrate.com/loans/small-business/what-is-a-merchant-cash-advance/
- https://www.greenboxcapital.com/services/merchant-cash-advances/
- https://icapitalfunding.com/merchant-cash-advance-mca/
- https://www.rapidfinance.com/blog/everything-you-need-to-know-about-a-merchant-cash-advance/
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