How to Get Merchant Cash Advance (MCA) Funding

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.

If your business has cash flow issues or is struggling with a financial emergency, a merchant cash advance (MCA) could be just the short-term business funding option you need. MCA funding is fast — sometimes as fast as one day — and can help your small business address immediate needs.

Like any kind of small business financing, however, it’s important to understand the fine points of merchant cash advances before you enter into an agreement.

In this article:

• Learn how MCA funding works and why this kind of business cash advance can be useful.
• Explore the process and strategies for getting and repaying a MCA loan.
• Discover how to calculate MCA fees and funding rates.

How Does a Merchant Cash Advance Work?

Unlike traditional bank loans, in which a financial institution provides cash to a business, MCAs are a commercial agreement between two businesses. MCA providers are companies just like yours and make money by providing funding in exchange for a percentage of your future profits.

In a typical MCA agreement, a merchant cash advance company gives a small business an upfront lump sum of money in exchange for a percentage of future debit card and credit card sales. Rather than an interest rate, the MCA carries a factor rate to determine the full repayment amount. Because there’s no underwriting process and fewer regulatory hoops to jump through, MCA providers can often make same-day payments to your business bank account.

A factor rate is a decimal number, usually between 1.1 to 1.5, that you multiply the principal amount by to determine the full repayment cost. For instance, on a $10,000 MCA loan with a 1.5 factor rate, you’d multiply $10,000 by 1.5. The total cost? You’d have to repay $15,000, plus any additional fees included in the agreement.

MCA repayment schedules tend to be more frequent than term business loans. Merchant cash advance companies often withdraw funds directly from a business’s bank account, with fixed repayments made from weekly or daily credit card sales.

Different companies work in different ways so it’s always important to go over an agreement with a lawyer.

How to Get MCA Funding

There are many reasons why you might want to work with a merchant cash advance company. You may operate a restaurant in a vacation town and need an influx of cash to get through the slow season. You might sell medical supplies and need some money to boost inventory before a major conference. Your construction company may have a long payment cycle and needs money to start the next job before the last one has paid you. Whatever the reason or type of business, an MCA can provide fast access to cash.

Some MCA providers have better reputations than others. As such, it’s very important to do your research and thoroughly review any agreements before signing them.

The typical process to get MCA funding looks like this:

1. Research: Look into leading national and local merchant cash advance companies to find the right fit for your business. Some of the top MCA lendersfunding providers include Biz2Credit, Fora Financial, and Reliant Funding.
2. Gather documents: The eligibility requirements for a merchant cash advance funoding are typically lower than a traditional loan, but you’ll likely still need the following documentation:
3. Business documents like a business plan, financial statements, and business license
4. Bank statements and credit card processing statements
5. Tax returns for the past two years, if you have them
6. Apply: Most MCA providers offer a streamlined online application process that you can fill out quickly.
7. Get approved and funded: After submitting to a credit report and being approved, your funds may be deposited in your bank account the same day you apply.

How to Repay MCA Funding

Merchant cash advances can be expensive in the long term. As such, it’s important to plan accordingly any time your business gets an MCA. You don’t want to incur expensive penalties for failing to make on-time payments.

Some tips for repaying your MCA loan include:

• Don’t take more than you need: Before you apply for an MCA, you should know exactly how you plan to spend the money and only request an advance amount you know you can comfortably pay back.
• Budget ahead of time: Although MCAs usually don’t have quite as fixed repayments as the monthly payments of traditional small business loans, you will know the full amount to repay upfront. As such, you can start budgeting immediately and allocating money to repay the debt.
• Get funding when it’s slow: Since MCA repayment terms work on percentages of your profits rather than fixed monthly payments, it can be helpful to get a business cash advance when you’ll have lower sales volume. That way, you can use the money to cover operating costs or even invest in expansion before your payments go back up in the busy season.

Benefits of MCA Funding

Merchant cash advances have a number of benefits, especially for small business owners with bad credit or businesses that need cash fast.

• Fast funding: The main advantage of MCA funding over other types of financing is speed. Many MCA providers offer same-day funding.
• Lower eligibility requirements: Traditional bank loans often have strict monthly revenue and minimum credit score requirements, as well as a minimum time in business. Most MCA providers have low (or no) personal credit score requirements and are willing to fund startups with less established income history.
• No collateral: You usually won’t have to put up collateral or a personal guarantee to secure an MCA loan, like you would with a traditional loan.
• Flexible repayment: Since repayment is based on your sales, your payments drop when business is slow, ensuring you’re not stuck with a fixed monthly payment that you can’t afford. You don’t have to pay interest on a MCA loan.

Conclusion

When your business needs cash quickly and you don’t have the time (or may not qualify) for a traditional bank loan, a merchant cash advance is a great alternative. MCAs often offer same-day funding and flexible repayment structures that let you pay off debt gradually.

If you’re looking for a fast influx of cash to support expansion, navigate seasonal downturns, or address other business needs, check out Biz2Credit’s merchant cash advance products to see if they’re right for your business.

FAQs

What is MCA funding?

MCA funding is another term for a merchant cash advance. MCAs are agreements between businesses in which an MCA provider pays another business an upfront lump sum amount of cash in exchange for a percentage of future credit card sales or other accounts receivable. Typically, the MCA provider charges a factor rate rather than an interest rate to determine the full repayment amount of the merchant cash advance loan.

How can a small business use MCA funding?

There are no restrictions on how small businesses use MCA funding. While most small businesses seek MCAs to help cover emergency expenses or resolve cash flow issues, you can use MCA funding to invest in growth, put a down payment on real estate, or any other business need.

What are typical rates for MCA funding?

The typical factor rate for an MCA ranges between 1.1 and 1.5. This means that to determine the full payback amount, you must multiply the loan principal by the factor rate. For instance, if you took out a $10,000 MCA loan with a 1.5 factor rate, the total amount to repay would be $15,000.

What are some alternatives to MCA funding?

Alternative financing options to MCA funding include traditional working capital or short term loans, business lines of credit, business credit cards, or invoice financing and factoring.

What are the best MCA providers?

There are many cash advance providers on the market, and not all of them have positive reputations. Some of the most reputable include Biz2Credit, Fora Financial, and Reliant Funding.

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