Merchant Cash Advance

 There are all sorts of business financing options available from banks and other lenders, such as term loans, mortgages, credit cards, SBA loans and business lines of credit. However, these standard financing methods aren't always ideal for every business and situation. If your company can't qualify for traditional financing or needs a quick injection of cash for a specific purpose, a merchant cash advance (MCA) is an alternative that may be worth considering. 

 The concept of a merchant advance, or business cash advance, isn't complicated. With this type of funding, you receive an upfront, lump sum payment in exchange for a predetermined amount of your business's future credit and debit card sales. So instead of borrowing money at a certain interest rate, you're selling a percentage of advance sales revenue. Because of this, MCAs aren't classified as loans, so there are no merchant cash advance regulations like there are with other types of business financing. 

 How an MCA works is also pretty straightforward. After you apply and get approved, the provider sends you an offer that lists all the terms of your advance. These include the lump-sum amount you'll receive, the provider's fee and the percentage they'll deduct from your daily credit and debit sales.

The offer also includes a repayment time frame that can range between 90 days and 18 months depending on the amount of the advance, your business cash flow and monthly sales volume. Unlike most business loans, an MCA doesn't have a specific payoff date. This is because the repayment is being made as a percentage of individual credit card transactions, so the amount collected can increase and decrease on a daily and monthly basis.

When you sign and return the offer, you agree to the terms and give your credit card processor authorization to send part of each sale to your Merchant Cash Advance provider. Within hours or a day or two of signing, the advance is deposited into your business bank account, and the provider's cut starts being held back by your card processor.

 Merchant cash advance qualifications are easier than any other type of business financing. Because the MCA requirements are mainly focused on credit card sales volume and relatively recent cash flow, even business owners with limited operating history, low personal credit scores, or little or no collateral can be approved.

Businesses that need cash quickly to meet different needs are also good candidates for merchant cash advances since there are no restrictions from a lender on how the funds have to be used. The cash can go toward day-to-day operating costs, unexpected equipment repairs, inventory purchases and any other expenses a business has to meet.

These advances are ideal for businesses that get a high percentage of their sales revenue through credit and debit card transactions deposited directly into their bank account, such as restaurants or brick and mortar or online retailers. However, having most sales via card transactions isn't a strict approval requirement of most merchant cash advance companies, so businesses with a mix of cash and credit sales can still qualify as long as there's a high enough volume.

Some providers don't advance cash to certain types of businesses and industries, though, such as nonprofits, firearm dealers and those in the financial, construction and energy industries.

 The process of getting approved for a merchant cash advance loan isn't as in-depth as applying for a traditional business loan. However, a provider still has to judge whether you're a worthwhile risk, so you'll need to provide certain information and documents. The MCA requirements can vary between providers but will likely include:

• Your driver's license or passport to prove your identity
• Three or more months of credit card processing statements
• One or two years of business tax returns ( on occasion ) 
• Recent business bank account statements
• A voided business check

Merchant cash advance companies look at your credit score, how long you've been in business and the amount of cash flow the business produces to weigh its stability and determine whether you can afford to pay back an advance. Providers also take a close look at your credit card processing statements to see if there's enough volume to justify a merchant cash advance. As a general guideline, you're more likely to get approved if you have a credit score above 525, two years of business history and an annual cash flow of around $180,000.

 The amount of a small business cash merchant advance can range from $5,000 up to $500,000 or more. The exact amount a provider offers you largely depends on your company's credit card sales volume, cash flow and business history.

Most MCA applications are just one or two pages long and can be completed online and submitted with the click of a mouse. There aren't a lot of supporting documents to send in with an application either, which helps make the approval process less complicated and faster.

Compared to applications for other types of financing that drag on for weeks or even months, a merchant advance can get cash into a business owner's hand within hours or a couple of days of approval and signing an agreement.

The advantage of quick funding can also make an expensive cash advance attractive to established businesses with strong credit histories. There are good reasons why an owner is willing to pay this extra cost — they may not want to put up valuable collateral for a loan or need immediate cash to cover an unplanned expense. Or, they may want to take advantage of a profit-making opportunity that can't wait the 30 days or longer it often takes to get funding approved through a traditional lender.

These types of businesses are likely to get approved for larger advances at lower factor rates because they're seen as less of a risk by providers.