Understanding if a Merchant Cash Advance is Right for My Small Business

by | Jan 27, 2021 | Merchant Cash Advances | 0 comments

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As a small business owner, you know that running a profitable business requires regular cash flow as well as working capital. It is worth noting that every small business goes through tough periods when sales are down, and funds are tight. Your small business may need to find a merchant cash advance loan during challenging times or tight transitions in order to keep the doors open or to expand. 

One type of funding many small businesses use is a merchant cash advance. Did you know that a merchant cash advance is a valuable tool business owners can use in order to get an advance on future revenues? As a small business owner, you must accept credit cards or have other regular payment streams flowing into a merchant account.  

You will be glad to know that merchant cash advances have been an important funding source for many small businesses. However, it is worth noting that a merchant cash advance isn’t a loan. Rather, it is simply an advance that relies on future revenues or sales coming into your business.

What is a Merchant Cash Advance?

We can define a merchant cash advance as a type of financing that allows a business to sell a certain portion of its future sales or revenue for immediate payment. It is worth noting that in most cases, cash advance loans tend to have a shorter repayment period than other financing options. Did you know that initially, people used merchant cash advances solely in order to finance future credit card sales?

This is why most clients were restaurants and retailers. However, you will be happy to know that this financing product has now evolved to the point where many cash advance companies can easily finance any future sales.

While you may think that the repayment plan would reflect on your business’ ability to pay, note that lenders still claim their payments even if your business is slow or going through seasonal downturns.

How does a Merchant Cash Advance Work?

You should know that many merchant cash advance companies typically consider their transactions as purchases of future sales instead of loans. It is worth noting that finance companies review your commercial sales, credit card sales, and bank statements to determine how much funding they will provide. Keep in mind that these reports provide them with important sales performance information, giving them a reasonable idea of the future sales potential of your small business.

Remember that a merchant cash advance is technically not a loan. Actually, it is quite different from a bank loan, making it a desirable financing solution for many small businesses.

Industries Most Suited for Merchant Cash Advances

The best thing is that merchant cash advances are quite flexible, and this makes them suitable for many industries. It does not matter if you are looking for a medical clinic loan or a loan for your trucking business. Merchant cash advances can be the answer you are looking for, regardless of the industry that your small business operates in.

Should your Small Business Avail a Merchant Cash Advance (MCA)?

It is worth noting that an MCA could be an excellent option if your business:

  • Needs quick and simple access to funds
  • Has reasonable cash flow via its merchant accounts; and
  • Can justify the higher interest rates that come with such an advance

Also, you should know that credit requirements are less stringent than small business loan requirements. This is why merchant cash advances are quite useful for small businesses and organizations with a high volume of credit card transactions.

Why are Merchant Cash Advances Popular?

It is no secret that, over the years, MCAs have become quite popular. This is mainly because of their quick nature and simple repayment options that business owners appreciate. Here are some benefits of merchant cash advances.

Quick and Simple Cash Assistance

One of the best things about merchant cash advances is that they allow businesses to run smoothly even in the face of an untimely or sudden cash crunch by offering them immediate cash support without tiring and long rounds of verifications and paperwork. Their quick nature has made this form of cash financing extremely popular among businesses.

No Collateral Required

Unlike conventional bank loans, your business does not have to provide any type of collateral in order to get a merchant cash advance. What does this mean? It means that the merchant cash company won’t forfeit any business asset or personal asset if you fail to pay because of a dip in sales.

Automatic Repayment

You repay automatically. As a result, there is no risk of late charges and penalties from overlooked due dates that usually occur with conventional bank loans.

The Drawback of MCAs


Did you know that companies offering merchant cash advances may charge a variety of fees? It is important to ask your provider or company upfront so that you can make the most suitable decision for your small business.

Higher Interest Rates

Note that in some cases, interest rates can be quite high. This is why you should thoroughly review all the repayment terms so that you know how much you will repay.

Alternatives to Merchant Cash Advances

If you think that this type of finance is not suitable for your small business, there are many alternatives to an MCA. Some examples are short-term loans, business credit cards, and business lines of credit.

Note that similar to a merchant cash advance, most business credit cards can provide you with quick access to cash. They are also easier to qualify for compared to a typical small business loan. You should consider these and other options, such as microloans, before making a final decision.

Final Thoughts

An MCA is a quick and hassle-free financing option for small businesses with an immediate funding need. However, it is worth noting that a merchant cash advance has some risks. Its high interest rates and fees could leave your business in need of more money.

This is why before choosing a merchant advance or any other type of business funding, you should understand all the details of your contract and evaluate the long-term effect it can have on the overall financial well-being of your small business.

About Small Business Funding

We are the one stop alternative financing funding source. Regardless if you have bad credit, short time in business, tax liens, judgments, or fast capital needs, we are your solution.

Our philosophy is why work harder when you can work smarter? That’s why Small Business Funding, through our network of financial partners, work with multiple providers on your behalf. Getting you the best rate and terms for your business.

Our network offers you access to quick and easy working capital to meet your individual business needs. We will put together a program to suit your business goals and financial situation, with ease. Why fill out 2, 4, even 6 applications when all you need to do is fill out one?

We recognize that small businesses are the driving force to grow our economy. In good times, as well as the challenging times, business owners need a fast cash flow solution.  Whether you use it for payroll, purchase new equipment, expand inventory, pay taxes, etc. Fact is, it doesn’t matter what you use the funds for, as long as it helps grow your business and increase your revenue!

If your company was turned down by traditional lending sources, such as banks and other commercial lending institutions, Small Business Funding can help.

Join our family – we look forward to serving you. Apply today