fbpx

Merchant Cash Advance

  • Competitive interest rates
  • Fast approval process
  • Access to funding in as little as 24 hours
  • All types of credit eligible
  • Low paperwork demands

5-star rating

Quick approval

Credit line advisors

How to Use Merchant Financing to Grow Your Business

Access to capital and funding is crucial to all businesses; however, it’s not always easy for small businesses to apply for financing because few options exist and the application process for traditional loans is complicated and time-consuming.

Fortunately, online funders offer alternative small business financing solutions, such as merchant cash advances, to bridge the gap. This page will discuss what merchant cash advances are, how they work, and how you can use them to grow your business.

What Is a Merchant Cash Advance?

A merchant cash advance (MCA) provides a business cash upfront in exchange for a percentage of its future sales. It’s an alternative financing option for business owners to get funding without collateral or personal credit requirements. 

As the name suggests, MCA isn’t a loan but an advance based on a company’s creditworthiness, future sales, and past debit card and credit card sales. When you apply for an MCA, you and the funder agree on an advance amount, a payback amount, and a holdback percentage. The agreed-upon holdback percentage is withheld from your daily sales as payment and the holdback percentage will apply until your balance is paid in full.

The payback amount will depend on a factor rate set by the funder based on their risk assessment of your company’s creditworthiness. The factor rate is inclusive of fees and interest rates; you multiply the cash advance by the factor rate to get your total repayment amount.

Repaying an MCA back depends on your daily revenue. Thus, with more sales, you can pay back the advance faster. You’re not obligated to pay more if you’re experiencing low sales but it does prolong the repayment period.

What Types of Businesses Use Merchant Financing?

Merchant financing is best for businesses looking to fund a profitable opportunity to generate revenue, like the bulk purchase of quick-turnaround inventory. An MCA is also a great financing option for companies that are borrowing to expand their operating capacity through the acquisition of machinery or to bring in extra help during peak season. Businesses that utilize merchant financing include:

  • Retailers, distributors, and suppliers
  • Transportation companies
  • Service-based businesses, like hair and nail salons
  • Bars and restaurants
  • Specialty trades
  • Auto repair shops

 

Types of companies have recently secured business cash advances

  • Contractors
  • Distributors
  • Bars
  • Hair and Nail Salons
  • Specialty Trades
  • Dentists
  • Florists
  • Barbers
  • Health Care Providers
  • Transportation Companies
  • Retailers
  • Restaurants
  • Suppliers
  • Auto repair shops

Qualification Requirements

  • At least 6 months in business
  • $10,000 in monthly revenue
  • Credit score of at least 550

(Note:  These are general working capital funding qualifications. Other information might be considered by funders.)

What Can You Use a Merchant Cash Advance For?

Debt doesn’t have to be a scary word, especially in the business world. Although you need to be mindful not to carry too much debt, borrowing money can also help your business succeed. Here are a few ways you can use an MCA to meet your current business needs or expand your operations.

Fortunately, online funders offer alternative small business financing solutions, such as merchant cash advances, to bridge the gap. This page will discuss what merchant cash advances are, how they work, and how you can use them to grow your business.

5 Things You Need to Have for Merchant Financing Approval

The application process for merchant financing is quick and easy — far from the complicated and long process of traditional small business loans. Once your financing is approved, you can typically receive the money in your bank account within one to two business days. Check out the requirements below to determine if you can get approved for an MCA.

1

Financial Documents

To get started, fill out an application online. You’ll then be matched with a dedicated adviser who will walk you through the entire process. Here are the general requirements and documents we may request:

  • Your Social Security number or employer identification number (EIN)
  • Bank statements, credit card statements, or payment processing data from the last three months
  • Tax returns
  • Financial statements, such as a balance sheet or a profit and loss (P&L) statement

2

Length of Time in Business

Funding providers use the length of time you’ve been in business to assess your creditworthiness and their risk of not getting paid. An established business typically translates to lower risk on their part. To qualify for a merchant financing , most funders require that you’ve been operating for at least six months.

3

Monthly Income

Funders look at your monthly income to determine if you have the cash flow to pay them back. They also use it to calculate your funding amount. Most MCA providers ask that you have at least $10,000 in monthly revenue. Obviously, if you’re bringing in more than the minimum requirement, your chance of getting approved for a larger amount is also higher.

4

Credit Rating

Your credit rating represents your payment history, the amount of debt you have, and the length of your credit history. As a business owner, you should continually monitor your personal credit score because it’s one of the factors funders check whenever you apply for funding.

We look at each client holistically to determine eligibility, and we provide funding to applicants with good and bad credit scores. This is why you might be eligible for an MCA if your credit score is at least 550. Strive to have a higher credit rating, though, because it typically helps borrowers get better interest rates and repayment terms.

5

Debt-to-Income Ratio

The debt-to-income ratio is a metric used by financial institutions like banks to compare the amount of debt you have against your overall income. MCA companies use the debt-to-income ratio to measure and calculate what you can reasonably afford to pay. As a result, someone with a lot of debt is usually considered a riskier applicant. Ideally, funders want borrowers to have a low debt-to-income ratio because it means they’re more likely to make their monthly payments on time without difficulty.

Best Cash Advance Funding Alternatives

Whether an advance  is right for you depends on your unique business goals and preferences. We’ve outlined the most popular business financing solutions below for owners who want to explore other options:

1

Short-Term Funding

Term Funding are a good fit for owners who want predictable and regular payment schedules. You receive a lump sum of money and pay interest on the total amount financed. Unsecured Funding do not require collateral.

2

Invoice Factoring

Commonly referred to as invoice financing, factoring works similar to MCA. The key difference here is that the funds you receive are based on account receivables, rather than merchant sales.

3

Business Line of Credit

Credit lines provide flexibility and maximum control. You only pay interest on the capital you use, rather than the total amount you’re eligible to receive. Owners can draw from an available pool of funds on an as-needed basis, as things come up.

4

Equipment Financing

Equipment financing makes sense for business owners who need to buy or rent machinery and equipment. Borrowers with bad credit can be approved. These funding do not require down payments or collateral.

Grow Your Business With Merchant Financing From Zoom Funding

The main advantage of a merchant cash advance is access to quick and easy financing without giving up personal or business assets as collateral. This is because MCA funders emphasize past credit card sales and future sales. With an MCA, you’re also not restricted with how you can use the funds you receive.

Cash advances are an excellent funding option for small business owners who need capital but who may have less-than-stellar credit ratings. Apply today to determine if you qualify for a merchant cash advance with Zoom Funding.

Frequently Asked Questions about MCAs

Both deal with cash advances, but how the advances are calculated is different. With merchant funding, you receive an up-front sum of money based on future sales. With factoring, you receive a capital advance based on accounts receivables.

Factor rates are used to calculate how much you’ll be responsible for paying back. The decimal figure is multiplied to determine the total amount owed. These are different than interest rates, which are expressed as a percentage. 

Yes! If you have bad credit, you may still be eligible for a business cash advance. A Zoomfunding advisor will go over qualification criteria with you in more detail when you apply online.

Funders “holdback” a percentage of your sales as payment for what you owe. Rather than paying funds directly to the funder on a fixed schedule, a certain percentage is taken off the top of card sales, until the total amount you borrowed is paid off.