Top 5 Merchant Cash Advance Benefits for Small Businesses

Updated on:
March 5, 2024

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Running a small business is no small feat. Ensuring consistent cash flow, covering immediate expenses, and maintaining a competitive edge often calls for additional financial support. One option that has been gaining traction among small business owners is the merchant cash advance (MCA). Before delving into its benefits, let’s begin by answering an essential question.

What is a Merchant Cash Advance?

A merchant cash advance is a type of business financing wherein a business owner receives a lump sum of cash upfront in exchange for a percentage of future revenue. Unlike bank loans or lines of credit, the MCA is tied directly to a business’s sales. Instead of fixed monthly payments, repayments are a percentage of those sales, making it a flexible financing option.

Now, let’s dive into the benefits of a merchant cash advance and how merchant cash advances work.

1. Quick and Easy Application Process

The application process for a merchant cash advance is typically much more straightforward than that of a small business loan from a bank. MCA providers often rely on business bank account statements and rather than extensive credit checks or real estate as collateral. This means that even business owners with bad credit or a limited credit history might be eligible, as long as their revenue is reoccurring.

Bad credit? Don’t worry, many small business owners find their financing options limited due to a not-so-perfect credit score. With MCA, the emphasis is less on the credit history and more on the actual business performance. This can include credit card sales, or other forms of revenue – as long as the revenue shows up on your bank statements. This approach offers hope to those who might be turned away by banks.

2. Flexibility in Repayment Terms

One of the standout features of a merchant cash advance is the flexibility in its repayment terms*. The repayment amount is based on a percentage of daily sales. So during slow months, the repayment is lower extending the repayment period. This ensures that the business’s cash flow isn’t heavily burdened, especially during off-peak seasons.

MCAs provide a tailored financing option, ensuring that repayment doesn’t choke out essential operations. Unlike term loans with fixed monthly payments, MCAs align with the business’s actual sales, ensuring that the repayment terms adjust with the ebb and flow of revenue.

3. Faster Approval Process and Access to Cash

In the world of business, time is of the essence. Bank loans or SBA loans can often take weeks or even months for the approval process to conclude. MCAs shine in this aspect. Given the lesser emphasis on credit checks and more on actual sales data, many MCA providers can make decisions within days, if not hours. Once approved, the lump sum can be deposited into the business bank account almost immediately, providing the working capital needed without long waits.

Need cash upfront? MCAs deliver. That because of its expedited approval process, an MCA is particularly beneficial for businesses that require urgent funding for immediate business needs, be it inventory, equipment, or other operational costs.

4. No Collaterals or Personal Guarantees

Banks and other lenders often demand collateral, such as real estate or other valuable assets, to secure a loan. This can be risky for business owners as they stand to lose these assets if they default. In contrast, MCAs do not require real estate collateral.

MCAs provide peace of mind to small business owners by ensuring that their personal and business assets are not jeopardized in the pursuit of additional capital.

5. Suitable for Various Types of Businesses

Regardless of the type of business, be it a restaurant, retail shop, or service provider, if credit card transactions are a significant part of the revenue, an MCA can be an excellent financing option. This flexibility ensures that a broader range of businesses can benefit from this type of financing without being constrained by the stringent eligibility criteria of bank loans.

An MCA provides a tailored solution, accommodating a wide array of business needs and structures.

In Conclusion: Is Merchant Cash Advance Worth It?

Every financing option has its pros and cons, and merchant cash advances are no exception. While they offer quick funding, flexibility, and broader eligibility, it’s essential to be mindful of the factor rate (this is a little different than an interest rate) and how it translates to the annual percentage rate. For businesses that require immediate access to cash without the prolonged waiting periods and rigorous checks of bank loans, an MCA might just be the right fit.

Remember, the key to smart business financing is understanding your business needs, assessing the available funding options, determining the advance amount needed, and choosing the one that aligns best with your short-term and long-term goals. For many small business owners, a merchant cash advance has been that optimal choice.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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