How merchant cash advances work

Who Qualifies for Merchant Cash Advances?
Would your business be eligible for a merchant cash advance?

If you have little or no collateral, limited business history, or a low credit rating, merchant cash advances could be a solution to your financing problems.

Merchant cash advance providers tend to have easy eligibility standards, so most small businesses shouldn’t have a problem qualifying.

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For businesses that make a big portion of their revenue through credit card payments—if you own a restaurant or a retail store, for example—then you can use a merchant cash advance as a short-term financing tool. It can help with working capital, inventory purchases, debt payments, unexpected payments, and more.

A merchant cash advance is not technically a loan. With an MCA, a financing company advances you cash in exchange for a percentage of your daily credit card and debit card sales, plus a fee. Merchant cash advances can be quick, easy ways to get a business cash advance with no need for collateral—even if you don’t have a great credit score.

You’re a small-business owner in need of capital now, and a merchant cash advance looks like a good deal. Before you act, consider this: That quick cash could really cost you.

MCAs have been known to carry annual percentage rates — the total cost of a loan, including all fees — in the triple digits. These costs, as well as the daily repayment schedule, can cause serious cash-flow problems. In some cases, MCAs lead to a debt trap, where it’s virtually impossible to repay and you must refinance into another — and yet another — MCA or file for bankruptcy.

That’s why many consumer advocates and nonprofit lenders consider MCAs a financing option of last resort. Below, we lay out the pros and cons of merchant cash advances to help you make a wise financing advance service plus choice.

A merchant cash advance has historically been for businesses whose revenue comes primarily from credit and debit card sales, such as restaurants or retail shops. Now, merchant cash advances are available to other businesses that don’t rely heavily on credit card or debit card sales. Merchant cash advance providers say their financing product is not technically a loan. A merchant cash advance provider gives you an upfront sum of cash in exchange for a slice of your future sales.

Merchant cash advance repayments can be structured in two ways.

You can get an upfront sum of cash in exchange for a slice of your future credit and debit card sales, or you can get upfront cash that is repaid by remitting fixed daily or weekly debits from your bank account, known as ACH, for Automated Clearing House, withdrawals.

This option has become the most common type of merchant cash advance, according to Sean Murray, a former merchant cash advance broker and founder of trade magazine deBanked. They’re referred to as ACH merchant cash advances and allow providers to market to businesses that aren’t primarily tied to credit and debit card sales.

Instead of making one fixed payment every month from a bank account over a set repayment period, with a merchant cash advance you make daily or weekly payments, plus fees, until the advance is paid in full.

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