A Comprehensive Guide to Merchant Cash Advance (MCA)

If an entrepreneur is in dire need of quick access of funds to meet a short term need for capital, he can leverage his credit card merchant account to get funds. Merchant cash advance is usually used as an alternative for the lengthy approval procedure and strict credit requirements needed to get a traditional term loan.

Technically, a merchant cash advance is not a loan, but instead a cash advance based on the credit card sales of a business. When evaluating weight credit and risk, Lenders that give out merchant cash advance use different criteria as compared to the one used by banks.  An MCA provider will use your daily credit card receipts to find out if your business is able to repay the funds in a timely way. In a merchant cash advance, a small business is required to sell part of its future credit card sales to get capital instantly.

Merchant cash advance attract higher rates as compared to other financing alternatives. For you to make an informed decision about ROI, make sure you understand the terms that the creditor is offering

How a merchant cash advance works

There is an agreement that is signed between the small business owner and the company that is giving out the advance. The agreement entails, the advance amount, the amount to be repaid, holdback and the duration of the advance. Once an agreement is reached, the advance is moved to the bank account of the business in exchange of a future portion of credit card receipts.

An agreed percentage of the daily credit cards receipts are withheld to repay the merchant cash advance. This known as holdback and the exercise will go on until the advance is fully paid. Accessibility to the merchant account of a business owner abolishes the collateral requirement needed for a traditional small business loan.

If your business does many credit card transactions, you will be able to repay the advance with a short period. This is because repayment of a merchant cash advance loan is based on a percentage of the daily balance in the merchant account.

Repayment and loan costs

A company that uses a merchant cash advance will be required to pay 20-40 percent of the total amount borrowed. This percentage is known as factor rate. Note that a holdback amount that a business owner pays daily is different from the repayment amount for the entire advance.

How to find out if a merchant advance is good for your business

As a business owner, when are you required to take a merchant cash advance? An MCA acts an alternative when a business needs to get capital quickly to take advantage an opportunity to buy inventory at a discounted price. Since credit requirements are less strict, this might be a perfect alternative for a business that does many credit card transactions.

How to apply

Depending on the paperwork and other information, the duration it takes for your merchant cash advance might be anywhere from hours to a few days. The moment the lender approves the process, you will see the cash in your business account within 2days.

The application procedure is not as intricate as a traditional loan. This makes the merchant cash advance approval procedure a faster alternative.  Below are the steps a business needs to follow:


  • Apply for funding
  • Provide your business and personal documents
  • Get approved
  • Set up the credit card processing
  • Finalize your details

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