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A Small Business Owner’s Guide to a Merchant Cash Advance

There are so many reasons you might find yourself here: looking for an alternative source of funding. Rapid growth, expanding to a new location, cash flow gaps, equipment needs and unexpected expenses are just a few common reasons why business owners turn to third-party financing.

To complicate matters, many businesses find that traditional lenders simply won’t work with them. Credit history, lack of collateral, and limited time in business are issues that often cause them to be turned down. In this situation – and with ever-growing capital needs – many owners turn to alternative lenders.

What is a Merchant Cash Advance?

An increasingly popular option is the merchant cash advance. What is a cash advance? Technically, this cash solution is not a loan. It is a sale. The lender provides a cash advance in the form of a lump sum. Depending on the lender, this money can be deposited in the business’ bank account in as little as 24 hours. 

The advance is based on the volume of the business’ credit card receipts. The lender is paid back by taking a portion of the business’ future credit cards sales each day. This makes it a much more flexible option than a bank loan or other traditional financing options. When business is good, you pay back more. If you experience a slow season, you pay back less. 

How Does the Merchant Account Process Work?

In the past, this cash solution was only offered to businesses that relied on debit and credit card sales. Today, thanks to new structures and technology, this offering is now available for many more companies. The lender starts by evaluating the business’ history, sales and projected revenue. 

From there, they determine how likely the business will be able to repay the advance – and how long it will take. If things are permitted to move forward, the lender will provide you a lump sum and set a repayment rate. This is typically a fixed rate that ranges from 10-20%. Known as the “holdback”, it is the daily or monthly percentage of your business’ credit card sales that will be withheld to repay the cash advance.

Why are Business’ Increasingly Choosing an MCA?

So, why are so many businesses turning to a merchant cash advance? MCAs are known for:

  • Providing fast access to cash
  • Being easy to qualify for
  • No collateral required
  • You choose how to use the funds
  • Flexible repayment terms
  • Stellar credit history not required

If you’re seriously considering applying for this type of business funding, just be sure that you partner with the right merchant cash advance provider for your business, like the team of experts at First American Merchant. Every business type and industry is different. So make sure the lender understands your unique needs, situations, challenges and opportunities you face.