A merchant or business cash advance is one funding option when you have poor credit or need fast, easy funding.
We explore how to get a business cash advance (and if it’s worth it) so that you can fund your small business with confidence.
1. Determine Your Monthly Sales
The funding amount you receive from a business cash advance is determined by your monthly credit card sales.
What lenders offer your small business will ultimately be determined by who you choose.
Some lenders may offer around 50% of your total monthly credit card sales. Meanwhile, others may offer 250% or above with merchant cash advances.
Figure out how much you average in credit card sales each month. Then, consider some of the percentages you may find with popular merchant cash advance lenders.
This will give you an idea as to whether a business cash advance will provide you with the working capital your small business needs.
If you don’t generate enough in sales, it might not be worth it for the merchant cash advance amount you receive. You might not be able to secure a merchant cash advance at all.
2. Understand and Calculate Factor Rates
Merchant cash advances don’t use interest rates like a traditional small business loan.
Instead, merchant cash advances use factor rates.
Factor rates can be considered more desirable because you’re paying a flat fee rather than interest.
However, factor rates can also be quite high. You might be dodging the interest rates offered by the average small business loan, but you could still owe a great deal of money on top of your principal with a business cash advance.
Let’s say that you qualify for $10,000 in working capital. If you have a factor rate of 1.5, you have to pay $15,000 in total. That’s an additional half of your merchant cash advance that you’ll now owe the lender just to borrow money.
That being said, factor rates will vary. Factor rates will often range anywhere from 1.1 to 1.5. Take your time to find the lenders with the lowest factor rates to reduce the amount you’ll owe.
3. Evaluate Common Application Requirements
Before spending time seriously seeking out any kind of business funding, it’s important to consider whether you’ll be eligible for financing.
Merchant cash advances are favored by some small business owners because they’re easy to qualify for. However, there are still eligibility requirements. Aside from documentation requirements like credit card receipts, these include:
- Minimum Business Revenue: Lenders offering businesses a business cash advance will require them to generate a certain amount of revenue. Check to see if you meet these monthly revenue requirements (in credit card or debit card sales).
- Time in Business: Some MCA lenders will require your small business to be a certain age. This might range anywhere from three months to several years.
- Clean Payment History: You shouldn’t have a small business loan or merchant cash advance that you’ve defaulted on. This will prevent MCA lenders from working with you.
- No Current MCAs: Do you already have a merchant cash advance you’re still paying back? If so, you might not be eligible for another merchant cash advance.
- Minimum Credit Score (May Not Be Applicable): Merchant cash advance acceptance rates are high. However, some lenders may ask for your credit score. This shouldn’t be a problem, but it’s a factor for merchant cash advances to keep in mind.
4. Shop Around and Explore Your Options
Once you fully understand what merchant cash advances are, what financing may look like for you, and whether you’re eligible, it’s time to start shopping.
There are numerous merchant cash advance lenders that you can work with. These include merchant cash advance company options such as:
- Rapid Finance
- Credibly
- Libertas Funding
- Fora Financial
- Lendio (if you’re looking to compare lenders offering merchant cash advances)
- Greenbox Capital
Who you choose as your lender for a merchant cash advance will boil down to a few key factors. Consider the following when reviewing merchant cash advance companies.
- What their factor rates are.
- Whether there are additional or hidden fees you’ll need to pay with your chosen merchant cash advance provider.
- How easy it is to qualify for their merchant cash advances.
- What other small business owners have to say (look for online reviews on and off their website).
- What their repayment plans look like. Do they deduct daily, weekly, or monthly payment from your credit card and debit card sales? What is their holdback rate? Know what you’re applying for in advance.
5. Time Your Application Just Right
A merchant cash advance is generally sought out by small business owners because they can’t access traditional financing.
But a lot of what makes merchant cash advances attractive is quick cash and easy funding.
Many businesses will apply for a merchant cash advance for one of two reasons: to get quick financing for cash flow gaps or to get working capital fast when there’s a business opportunity you need to take advantage of now.
It’s important to time your application for when you truly need the cash. If you experience seasonal cash flow gaps or could get equipment for your small business at a bargain, for example, a merchant cash advance might be worth applying for.
However, if you just need financing, you’re likely better off pursuing other options instead.
Should You Get a Business Cash Advance?
The pros of a merchant cash advance are obvious: you get cash quickly and without hassle. But that comes with a tradeoff.
Business cash advances can be expensive. High factor rates and other fees associated with this form of financing can see you paying a substantial amount to support your business’s operations.
They have undesirable repayment terms that might put you in a tough spot should your credit card sales be weaker than anticipated. In some cases, you might not qualify if you don’t meet the minimum revenue threshold.
More than that, a small business cash advance is only suitable for short-term business financing and cash flow support. If you need financing for long-term, sustainable business growth, a merchant cash advance is not for you.
A business cash advance offers some advantages if poor credit is getting in the way of funding your small business. But it’s not the best financing option if it can be avoided.
It’s also not the right choice if building credit is a priority, as your repayment won’t be reported to any business credit bureau.
Business Cash Advance Alternatives
There are multiple alternative financing options you can use to fund your small business. You aren’t limited to a merchant cash advance.
If you need fast funding or aren’t able to leverage good personal credit, for example, you could always turn to a no doc business line of credit, like equipment financing.
Equipment financing is easier to qualify for than a traditional business loan and leverages your equipment as collateral. You can qualify for the amount you need for the appliances or tech you need for your small business.
So long as you make sure your repayment plan doesn’t exceed the lifespan of your equipment, you can benefit greatly from an equipment loan if you need funding to start your business or scale it.
Another great option is a business credit card.
Business credit cards like corporate cards and other EIN-only options are easy to qualify for, come with decent credit lines (based on your revenue), and feature better terms and no interest rates.
We recommend these types of business credit cards first.
Traditional credit cards can be a bit more difficult to secure without strong personal or business credit. You may also run into the issue of them reporting to personal credit bureaus. You don’t want your personal credit to be involved when applying for a business credit card.
You also don’t want a credit card with high interest rates. You can get an unsecured credit card, but this type of credit card comes with several disadvantages as well.
Do you have unpaid invoices that could be leveraged to fund your small business? If so, invoice financing is an easy-to-qualify-for alternative that any small business owner can take advantage of.
Aptly named, invoice financing is when you get lending for unpaid invoices, paying back the principal plus a flat fee rate. Invoice financing can be a good idea if you have customers who pay back their invoices on time.
Just be wary of high fees or the penalties that come with late invoice repayment. Unlike the other two options above, invoice financing can be risky in some scenarios.
Get More Business Financing with Credit Suite
If you’re struggling to secure funding because your business credit is getting in the way, Credit Suite can serve as your business’s solution to financing woes.
Credit Suite’s Fundability System is designed for small businesses like your own. We help you overcome the obstacles to funding that you experience so that you can realize your business’s full potential.
Our Fundability System comes with:
- Step-by-step guidance to identify, address, and resolve issues within your business structure that are preventing you from accessing credit and small business financing solutions.
- A comprehensive list of vendors and lenders that you pre-qualify for. This ensures you connect with the right funding opportunities and remove the difficulty of trying to seek out the right financing solutions on your own.
- One-on-one guidance for more effective business credit building and scaling.
- A proven approach to building business credit without having to spend thousands of dollars and years trying to do it all on your own.
- Up-to-date insights and information in one easy-to-use, centralized dashboard.
If your business credit is a source of frustration in your business journey, sign up for Credit Suite today to get the support your small business demands!
