Disclaimer: Information in the merchant cash advance articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the merchant cash advance articles often covers financial products that Biz2Credit does not currently offer.

Small business owners run into all kinds of challenges when running their businesses. There are so many success factors outside of your control, you never know when you might need an influx of cash. From a maintenance issue at a supplier that stops production to macroeconomic downturns, things happen that force entrepreneurs to make quick funding decisions.

But while traditional bank loans can be great options, they tend to have strict qualification requirements and can take weeks or even months to process. That’s why a small business cash advance like a Merchant Cash Abvance (MCA) may be a better option.

MCA business funding is another term for a merchant cash advance, an arrangement in which an MCA provider gives a small business an upfront lump sum of cash in exchange for a percentage of future sales. Rather than pay an interest rate, a factor rate calculates the total amount you’ll pay back to the MCA provider. This small business financing option is fast —sometimes offering same-day funding.

Here, we break down the key points to know about merchant cash advance small business funding.

In this article:

• Define MCA business funding and understand how they can help your business.
• Understand how you can use a small business cash advance and repay it promptly.
• Learn how to get a merchant cash advance.

Why MCA Business Funding Is a Good Option

Alternative funding options like MCA business funding is a great option for small business owners who may not meet the requirements for traditional business funding. Traditional lenders like banks and credit unions have strict loan conditions, including high minimum personal credit scores, business monthly revenue requirements, and minimum time in business.

As such, traditional funding may be difficult for startups and new businesses, as well as business owners with bad credit history.

Depending on the company, an MCA advance will likely have lower credit score requirements (or none at all), lower business revenue requirements, and no time in business or collateral requirements. In addition to that, MCAs can have the following benefits:

• Easy application process: Merchant cash advance companies make it easy to apply online with less information and fewer bank statements than the traditional process. It usually takes a couple of business days to approve a funding amount.
• Increase cash flow: Small businesses having a tough time paying operating expenses and meeting debts can use a merchant cash advance to cover immediate costs, shore up working capital, and keep the business in good financial health.
• Fast funding: Many MCA providers may offer same-day funding, so you can get through the application process and get money in your business bank account within a few days.
• Flexible repayment: Since an MCA advance is repaid through future credit card sales or debit card sales, you only pay it back as your business turns a profit, rather than fixed payments every month.

How Small Businesses Can Use MCA Business Funding

Some types of financing come with strings attached. For instance, you can only use an equipment loan on a specific piece of equipment or a commercial real estate loan on a specific property. MCA business funding, on the other hand, has no such restrictions.

This type of business cash advance is designed to be flexible for small business owners. When you get a merchant cash advance, you can use it to pay off debts, cover operating expenses, run a marketing campaign, hire a contractor, purchase inventory, or anything else your business needs. If you simply want to increase cash flow to deal with seasonal downturns or build an emergency fund, that’s fine, too.

Because they’re so flexible and base repayment on your future business success, merchant cash advance financing offers an affordable, fast funding strategy for your business.

Some of the most common uses of MCA business funding include:

• Increase cash flow
• Purchasing inventory or raw materials
• Paying unforeseen costs
• Purchasing equipment
• Seasonal support
• Marketing and growth activities
• Hiring

MCA Funding Repayment

While short term loans can be great assets to borrowers, they come with fixed repayment schedules that force you to pay the same amount every month. A merchant cash advance’s repayment terms, on the other hand, work with your business.

Although many MCA providers require weekly or even daily sales payments rather than monthly payments, they’re based on your current business success. When you get a merchant cash advance, you’ll know how much you’ll have to pay back from the start. The total amount repaid is calculated by multiplying the loan principal by a factor rate, usually in the range of 1.1 to 1.5, plus any additional fees.

For example, if you took out a $10,000 funding amount with a 1.4 factor rate, you’d multiply 10,000 x 1.4. That’s $14,000 you’ll have to repay, plus origination and other fees.

MCA repayments are based on a percentage of your credit card sales or other accounts receivable. So, say you must pay 10% of your weekly sales to the MCA provider, and you make about $2,000 profit per week. That’s $200/week to the MCA provider, and you’ll pay off the loan in 70 weeks — a little over a year.

There’s no specific repayment period or prepayment penalties with MCAs, so depending on your loan agreement, you may opt to pay a higher percentage of sales immediately to get out of debt faster. You can pay a lower percentage if it takes a while to see sales return.

It’s always a good idea to budget ahead of time to make sure you can afford cutting into profits and never agree to terms you can’t afford. Make sure you review any agreement with a lawyer before signing.

Conclusion

MCA business funding isa great alternative to traditional financing for several reasons. Primarily, they offer much faster funding times and have fewer restrictions, making them suitable for startups and business owners with bad credit.

If your business needs fast funding, merchant cash advance providers like Biz2Credit can process your application and, if approved, deposit funds in your business bank account in as little as a few days. That way, you can spend less time worrying about money and more time building your business.

FAQs

What is MCA business funding?

MCA business funding is another term for a merchant cash advance. In this form of financing, an MCA provider gives a small business a lump sum of cash upfront in exchange for a percentage of future sales. The total repayment amount is calculated with a factor rate rather than an interest rate.

Is it easy to get MCA business funding?

One of the primary perks of an MCA is that it’s easier to get than a traditional loan. There are lower credit score requirements and other eligibility requirements, making them more appealing to startups or business owners with poor credit.

How do you repay MCA business funding?

Depending on the agreement and advance amount, you’ll typically repay an MCA with weekly or daily payments based on your credit card transactions or other accounts receivable. You’ll pay a percentage of sales until you’ve reached the full repayment amount, calculated with a factor rate.

How can you use MCA funding?

Merchant cash advances have practically no restrictions. Of course, you can’t use the money on any illegal business activity, but otherwise, it’s yours to spend on any business need. Businesses often use MCA to cover emergency expenses, increase cash flow, purchase inventory, and a variety of other purposes., purchase inventory, and a variety of other purposes.

What are the advantages of MCA business funding?

The main advantages of an MCA over traditional funding include:

• Faster funding
• Lower eligibility requirements
• Flexible repayment terms

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