Merchant Cash Advance
When your business needs fast capital, a Merchant Cash Advance is a great solution. This type of financing is easily accessible for most businesses, and it does not come with steep requirements like excellent credit scores or overflowing bank statements.
Another advantage of a Merchant Cash Advance is the fluid payment structure. Each month, your business’s cash flow will dictate how much you pay. If things slow down, your payments will shrink in proportion. This is what differentiates Merchant Cash Advances from traditional loans, and makes them an attractive solution for many businesses.
What Is A Merchant Cash Advance?
A Merchant Cash Advance (MCA), also called “Credit Card Factoring,” is a sum of capital your business receives that is paid back via a fixed percentage of your future debit and credit card sales called a “Holdback Rate.” This repayment structure is dynamic, and your payments will fluctuate proportionally to your debit and credit card sales on a daily basis.
An MCA is often easier to receive approval for than traditional business loans. It is a great option for businesses with low credit scores, a short history in business, or with little collateral. Your business will be approved for a Merchant Cash Advance largely dependent on the amount of your credit card receivables.
This unique solution delivers capital immediately to your business in a sum equivalent to your future credit card sales. No need to wait weeks or months for your credit card processing company to release the money – Allenby can “Advance” you the funds with no delay.
- Rates: Starting at 15%
- Funding Amount: $7.5K – $1M
- Funding Term: 3 – 18 Months
- Speed: 1 – 2 Business Days
How Does A Merchant Cash Advance Work?
Your business’s ability to qualify for a Merchant Cash Advance is largely dependent on your previous debit and credit card sales. The amount of funding you will be eligible to receive also depends on these numbers. Businesses that can show strong enough debit and credit card sales will not be rejected for having poor credit or unstable cash flow.
Your credit score and cash flow can influence other areas of your Merchant Cash Advance though, like your holdback rate. This is the fixed percentage of your debit and credit card sales that is deducted every payment period. Standard holdback rates range from 6% to 17%.
Your MCA will also include a “Factor Rate” which determines the total amount you will repay.
Example of a Merchant Cash Advance:
Your business applies for a Merchant Cash Advance from Allenby. Your application is approved and you receive an advance of $35,000. Your holdback rate is set at 10% and your factor rate is 1.16. Your total amount to repay is $40,600. Say you generate $84,000 in credit card transactions the first month, based on your hold back rate of 10%, you would repay $8,400 of the advance that month. If revenues drop the next month to $65,000, your hold back rate of 10% would remain unchanged, so you would only pay $6,500 that month.
What Are The Benefits of A Merchant Cash Advance?
The barrier to entry for this product is among the lowest on the market. Businesses with poor credit, insignificant assets, varying cashflow, or with less than 1 year in operation, often find MCAs as the only available path to funding. Approvals are fast and money can appear in your bank account in as little as 48 hours.
If your business is seasonal, or goes through periods of decreased revenues, a Merchant Cash Advance can be especially helpful due to it’s fluid repayment structure. As your business experiences slow months, your payments will also shrink, avoiding undue stress on your company’s cashflow. Traditional business loans generally require a borrower to repay a fixed amount each month, regardless of how well their business performs.
A business with seasonal revenue can take advantage of funds from a Merchant Cash Advance during a slow period and enjoy a low repayment amount. Then, when business picks up again, their payments would rise along with debit and credit card sales, and the majority of the advance would be repaid. Because an MCA’s holdback rate is a fixed percentage, businesses never have to worry about being able to afford the payments, as they rise and fall along with debit and credit card sales.
What Are The Downsides Of A Merchant Cash Advance?
Merchant Cash Advances can carry large costs and are regarded as one of the most expensive financing options for businesses. This is due to the increased risk taken on by the MCA provider – applicants for this product usually cannot qualify for other more affordable options because of their poor credit scores and financials, which make them more likely to default.
The amount and regularity of your payments could also put strain on your cash flow. If your business experiences strong sales, your payments will also be large, until the entire MCA is paid off.
There is also no advantage to repaying the Merchant Cash Advance early. There are a fixed amount of fees regardless of when the MCA is finished being paid off. This is different than traditional business loans, which use an amortization schedule that allows for early repayments which save on interest.
Who Qualifies for Merchant Cash Advance?
Approved businesses generally met the following criteria:
- Annual Revenue: $120K+
- Credit Score: 550+
- Time In business: 4 Months+
How To Apply
Our application process is fast and easy, taking just a few minutes to complete, and funds can appear in your bank account in as few as 1-2 business days from approval. Here is how to apply:
Step 1: Contemplate Your Needs
Before you apply, make sure that the funding program is the right solution for your business’s needs. Consider whether you will be able to use the funds for your desired purpose, and if the repayment structure is conducive to your cash flow. Take your time to determine the amount of funding your business will most benefit from.
Step 2: Collect Your Documents
Here is what you will need to submit with your application:
- A valid driver’s license
- 1 voided business check
- Last 4 months of bank statements
- Last 4 months of credit card processing statements
Step 3: Fill Out Our Online Application
To start the application process, give us a call or fill out our short online application. We will ask you to provide some basic information, along with your desired funding amount.
Step 4: Speak to a Representative
Once you apply, a representative will reach out to you, so make sure you have all your documents ready from ‘Step 2’. The representative will explain the repayment structure, rates, and terms you qualify for. This will ensure that there are no surprises or hidden fees during repayment. Once you decide, you will be given a final application to submit along with your documents.
Step 5: Receive Approval
If you’ve been approved, you’ll hear back from us within 24 hours. Funds should then appear in your bank account in 1-2 business days.
What If I'm Declined?
Your application may be declined if your business’s cash flow is insufficient at the time of your application. This product places an emphasis on monthly revenue, so applicants with strong sales in the previous 4 months are more likely to receive approval than those without. You may also be asked to provide statements going back farther, even from a previous year.
In some cases, we may conclude that taking on more debt would do more harm than good for your business. In this case, we might recommend a different, more affordable business financing tool. At Allenby, we can help you explore your options and point you in the direction of the most sensible choices.
How to Get Funding
Follow our easy 3-step funding to get cash into your account within 24-48 hours.
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