Merchant Cash Advance Guide for Small Businesses

Home - Small Business Finance - Merchant Cash Advance Guide for Small Businesses

Merchant Cash Advance Guide for Small Businesses

How Merchant Cash Advance Works

Merchant Cash Advance Guide for Small Businesses

If you’re on the grind for funds for your small biz, a merchant cash advance (MCA) might be the game-changer you need. MCAs are the best alternative to the traditional loan scene. Say goodbye to the never-ending approval hoops and strict credit requirements that come with regular bank loans.

However, remember that every funding option, whether cash advances, credit lines, or loans, comes with perks and pitfalls. Before diving into merchant cash advance (or any funding solution), ensure you’ve got the lowdown on what you’re signing up for.

Understanding Merchant Cash Advance

MCAs are indeed financial products, but it’s crucial to distinguish them from traditional loans. When you opt for an MCA, a lender buys a percentage of your future credit card sales. Getting the cash depends on checking out how much money your business pulls in through credit card sales.

Once you decide to proceed with a merchant cash advance, you’ll enter into a merchant cash advance agreement with the lender. You’re locking in the deal by signing a contract containing all the MCA deets. Unlike conventional loans, there’s usually no fixed date for repayment in these contracts. Instead, the advance is repaid once the principal amount and predefined interest are fully collected.

Diving into the contract, peep those deets on how the lender screens applicants. It spills the tea on the criteria they vibe with when deciding who’s eligible.

How Merchant Cash Advance Works

Credit bureaus and traditional banks might not be your go-to for a merchant cash advance. Instead, hop online and explore alternative lenders.

The application process for merchant cash advances is a breeze. Once you’ve submitted it, sit tight and watch the offers roll in. Once the approval stamp is on your merchant cash advance, expect a lump sum of cash in your account in as little as 3 days.

Repaying your cash advance is not a fixed monthly amount. Instead, a portion of your daily credit card sales (plus interest) takes care of it. The repayment period kicks off right after receiving the funds, lasting between 90 days and 18 months.

The total cost of your merchant cash advance is influenced by two key factors: your factor rate, which might range between 1.1 and 1.5, and the advance amount. Your business’s credit and financial strength stand out here since better credit equals a lower factor rate.

Furthermore, the holdback rate refers to the percentage of your daily sales the lender collects until your advance is fully repaid. It’s between 10% and 20%, automatically withdrawn daily from your account. More sales mean higher payments and a quicker payoff. In comparison, fewer sales translate to lower payments and a more leisurely repayment period.

Who are MCAs For?

Merchant Cash Advances (MCAs) are handy for some businesses needing quick cash vibes. They have your back when unexpected bills or expenses pop up outta nowhere. Whether procuring materials for a substantial order, hiring additional staff, gearing up for a high-demand season, or investing in new equipment, MCAs offer the flexibility to navigate these financial challenges.

One significant aspect is that MCAs are well-suited for businesses in their early stages, still working towards qualifying for a conventional bank loan. For those seeking short-term financing with adaptable repayment terms, MCAs emerge as a practical choice.

Importantly, MCAs are inclusive and available to businesses of all types and sizes, irrespective of industry. The primary qualification rests on maintaining a consistent flow of credit card transactions. MCAs are for companies with not-so-stellar credit scores because different lenders work differently on credit scores. Some might be about that score check, while others are more into checking if you’re all good to pay back the advance. They’re all about your current groove, not just the past credit track.

A distinctive feature of MCAs is their reliance on a percentage of credit card sales for repayment. Business owners only need to assure lenders of the steady nature of their daily credit card transactions to guarantee repayment. This assurance can be established by presenting credit card receipts from the preceding two or three months of business operations, allowing for a pragmatic and accessible financing solution.

Eligibility Requirements in Applying for MCAs

Navigating the world of Merchant Cash Advances (MCAs) can seem like a complex task, but understanding the requirements can make the process smoother.

1. Monthly Credit Card Transactions: Lenders vary in their expectations for monthly credit card transactions. Some may set the bar at 500, while others require $5000. Being aware of this requirement is crucial, as it can impact your eligibility with different lenders.

2. Time in Business: Traditionally, most lenders prefer businesses that have been operational for at least a year. However, the landscape is evolving, and some lenders may consider your application even if you have less than six months of business history. This flexibility opens doors for newer enterprises seeking financial support.

3. Monthly Deposits: Certain lenders may have a prerequisite for the number of monthly deposits, emphasizing consistency in your cash flow. Be sure to inquire about this requirement and evaluate if it aligns with your business operations.

4. Credit Score: Your credit score is a significant factor in the MCA application process. While many lenders look for a credit score of 500 to 600, some may be willing to work with businesses with lower scores. Remember that the rates and fees might be higher in such cases, sometimes reaching 5% to 10% above standard retrieval rates.

General Minimum Qualifications for an MCA

To provide a quick overview, here are the general minimum qualifications you can expect:

  • 1+ years in business: Demonstrating a track record of at least a year showcases stability and resilience.
  • $50,000+ in annual revenue: This revenue threshold helps lenders gauge the financial health of your business.
  • 500 minimum credit score: While this is a common baseline, it’s important to explore lenders who may consider lower scores if needed.

Understanding these requirements will empower you to approach potential lenders with confidence. Remember, each business is unique, and finding the right fit is key to a successful Merchant Cash Advance experience. If you have any specific questions or need guidance tailored to your situation, don’t hesitate to contact financial professionals who can provide personalized assistance.

Merchant Cash Advance: Advantages

If you need rapid funding and a hassle-free application process, merchant cash advances (MCAs) could be your financial solution. Here’s a closer look at the advantages they offer:

  1. Adaptable to Any Business Use Case: Your MCA funds can be utilized for virtually any business expense, making them versatile for various needs. While they excel in financing short-term operating costs like restocking inventory or meeting payroll, their speed makes them ideal for handling emergency expenses such as equipment repairs and cash flow gaps.
  2. Flexible Repayment Schedule: Unlike other loans with fixed payment schedules, MCAs offer repayment flexibility. During seasonal lulls or challenging weeks with cash flow, you can make minimal payments without straining your finances. Some providers may set a minimum monthly payment or maximum repayment period, so review the terms to avoid unexpected fees during slow months.
  3. High Borrowing Limits: Enjoy a wide range of spending power with borrowing limits ranging from $5,000 to $400,000. The amount you qualify for is linked to your sales volume, providing greater borrowing capacity for businesses with higher revenue.
  4. Lenient Qualifications: Concerned about your credit score? Fret not. MCA providers are more interested in your credit card processing statements than your credit score. This approach allows startups, young businesses, and individuals with credit challenges to access funding. While a higher credit score coupled with robust credit card sales may secure a lower factor rate, the flexibility of the payback method accommodates businesses during slower periods, ensuring minimal payments when needed.
  5. No Collateral Required: MCAs are unsecured, meaning you don’t have to risk your assets, such as your house, truck, or personal savings account. However, it’s essential to know that some providers may request a personal guarantee, so always review the contract terms before committing.
  6. Swift Application, Processing, and Funding: Time is of the essence, and MCAs understand that. The entire process is lightning-fast, from application to having funds in your account. Approval can be obtained in less than 24 hours, and funds can be accessible in your account within 3 days. Alternative lenders, not bound by the same regulations as traditional banks, can expedite the underwriting process, resulting in quicker transactions.

Merchant Cash Advance: Disadvantages

While a merchant cash advance (MCA) can be a powerful capital tool, knowing its potential downsides is essential. Let’s explore some of the cons associated with merchant cash advances.

  1. Difficult to budget: The unpredictable nature of MCA costs can pose challenges in budgeting. Traditional business models often see increased sales leading to additional funds for business development. However, with MCAs, rising sales may result in higher correlated expenses due to the structure of repayments. Developing a comprehensive budget that accommodates the fluctuating nature of MCA costs is crucial for effective financial planning.
  2. Doesn’t help build business credit: Unlike other financing options, merchant cash advances may not contribute to building your business credit. This could impact your ability to qualify for larger and more favorable business loans. To ensure a robust credit history, consider diversifying your financing sources and exploring options that report your payments to credit bureaus.
  3. No prepayment incentives: One of the drawbacks of MCAs is the absence of prepayment incentives. Unlike traditional loans, where early repayment can save you on interest, MCAs use a fixed factor rate, meaning your repayment amount remains constant. While the flexibility of MCAs can be advantageous, it’s important to factor in this lack of prepayment benefits when assessing your financing options.
  4. Potential for super high APRs: While MCAs provide accessibility to businesses of various sizes and industries, they can be costly, especially for those with poor credit scores and weaker financial standings. It’s important to carefully evaluate the total cost of an MCA, including any associated fees, to determine its affordability for your specific business circumstances.

Steps for Applying to MCAs

Applying for a Merchant Cash Advance (MCA) is a straightforward process that allows business owners to access funds quickly for their operational needs. Here’s a step-by-step guide to help you navigate through the application seamlessly:

1. Online Application:

Most lenders make it convenient for you to apply for an MCA through their online platform. On their dedicated application page, you’ll find a form that requires some essential information to get started. The details typically include:

  • % of ownership
  • Annual gross revenue of your business
  • Business owner’s full name
  • Business owner’s home address
  • Business owner’s SSN
  • Company address
  • Company name
  • Contact number
  • Email
  • Loan amount
  • Monthly credit card volume
  • Number of years in business

2. Agree to Terms and Conditions:

Review and agree to the terms and conditions once you’ve filled in the required details. It’s crucial to understand the terms of the MCA before proceeding. This step signals your commitment to the process and moves you forward in the application.

3. Document Submission:

Depending on the lender, the next step may involve uploading essential business documents. These could include:

  • Recent credit card processing statements
  • Recent business tax returns
  • Financial statements
  • Credit report
  • Business ID

Ensuring you provide accurate and up-to-date information will facilitate a smoother evaluation process.

4. Communication with Lender:

Expect to be contacted by a representative from the lending firm. They will guide you through the subsequent stages of the application and address any queries you may have. This personalized touch ensures you are well-informed and comfortable with the process.

5. Credit Card Processing Setup:

Upon approval, the lender may initiate the setup of credit card processing. In some cases, a switch in credit card processors may be required. This step is crucial for the seamless flow of funds and ensures that your business is aligned with the terms of the MCA.

6. Fund Disbursement:

Once all the necessary arrangements are in place, the lending firm swiftly deposits the approved funds into your business’s bank account. This usually happens within a few days of approval. Be prepared for repayment to commence through your merchant account immediately.


Navigating the Merchant Cash Advance (MCA) process for your small business is made simple through online applications. GoKapital, a trusted private lender, specializes in business loans and real estate financing. With a commitment to providing tailored financial support, GoKapital is a reliable partner for entrepreneurs seeking swift and efficient funding solutions. Explore the possibilities with GoKapital to propel the success and growth of your small business.



GoKapital offers business owners alternative working capital solutions through our various funding programs for business loans.