What is a merchant cash advance?
A merchant cash advance is an advance against future credit card sales. A provider analyzes past credit card sale receipts to project future sales and advances you a lump sum against those sales.
Is a merchant cash advance a loan?
No, a merchant cash advance or MCA is not a loan. Repayment of principal plus interest isn’t amortized and you do not make a large monthly payment. Technically, the provider purchases a portion of your credit card sales in advance. MCAs are considered a commercial funding option.
Can I get a merchant cash advance if my small business doesn’t do a large volume of credit card sales?
Yes, some merchant cash advance providers will analyze all sales, just not credit card sales, to estimate future revenues and will advance a sum against that estimate. Typically, they’ll take their repayment through an ACH withdrawal (see below).
Which types of lenders offer merchant cash advances?
Online and alternative lenders offer business cash advances.
Can I get a merchant cash advance from a bank?
No, traditional banks do not offer merchant cash advances.
How large of an advance can I receive?
The size of the advance will depend upon your sales volume. Shield Funding offers merchant cash advances from $2,000 to $750,000+.
How quickly can my merchant cash advance fund?
If you have all your documents ready when you apply, your advance can be funded within the same day you apply.
Are there restrictions on how I use the MCA funds?
No, you can use the funds in the best way for your business.
Can I take out more than one MCA?
You can take a second one depending on your sales volume and how much has been paid on your existing MCA, or you can consolidate more than one MCA.
Do I pay interest on a merchant cash advance?
Merchant cash advance providers don’t charge interest on advances, instead they charge a fee in the form of a factor rate.
What is a factor rate?
A factor rate is a flat fee charged by a merchant cash advance provider. It’s shown as 1.2 or 1.5 in the advance documents, and in these examples it is 20% and 50% respectively.
How do I calculate what I’ll pay for my merchant cash advance?
Take the amount you’re borrowing, say $25,000, and convert the factor rate into a percent. Then multiply this merchant by the advance amount. Subtract the advance from this amount and you’ll have the provider’s fee.
For example: $25,000 X a factor rate of 1.5 (150%) = $37,500 – advance of $25,000 = $12,500 the merchant cash advance provider’s fee.
How do merchant cash advance providers take their repayment?
Merchant cash advance providers take a percentage of your daily or weekly sales. This percentage is called a holdback. The holdback could be anywhere from 10% to 20%. Providers use one of three ways to collect their repayment: split withholding, ACH withdrawal, or lockbox repayment.
What is split withholding?
Split withholding is one method to repay a merchant cash advance. The credit card processor splits your credit card receipts between you and the MCA provider. They send your payment automatically.
What is the lockbox or bank withholding repayment method?
With this repayment method, the bank receives your credit card sales and splits them between your business checking account and the MCA provider. This delays your receipt of funds by one day.
What is the ACH withdrawal repayment method?
The Automated Clearing House, or ACH, withdrawal method is typically the repayment process chosen by MCA providers when your business doesn’t do a large volume of credit card sales. They withdraw their repayment from your business checking account. It’s your responsibility to make sure the funds are available for withdrawal.
Will I have to switch my credit card processor?
No.
How do I apply for a merchant cash advance?
You can apply online or by calling Shield Funding at (888) 906-1688
Does a merchant cash advance provider check my credit score?
While it’s not a guarantee that they will pull your credit score, most providers will check it. You can get a soft pull request to establish your funding amount but before the contract loses there will be likely be a hard pull. A hard pull of your credit score can lower it by up to five points.
How can I qualify for a merchant cash advance?
A. The minimum qualifications are:
- At least two months in business
- Minimum credit score of 500
- Minimum monthly revenues of $8,000
- What documents will I need to apply for a merchant cash advance?
- For a merchant cash advance less than $100,000, you will need:
- Drivers License
- Bank Statements
- Proof of Ownership
- Property Lease Agreement
- Credit Card Processing Statements
- Voided Check
B. For a merchant cash advance over $100,000 you will need the above documents in addition to these:
- Personal Tax Returns
- Business Tax Returns
- Profit & Loss Statement
- Balance Sheet
- Business Debt Schedule (possible)
- Potential for Others
Can I get a merchant cash advance with poor credit?
Yes, these loan products are ideal for small business owners with poor credit. Because the provider’s decision whether or not to advance funds is based primarily on credit card sales, your credit score is less important. Providers will work with borrowers who have credit scores as low as 500.
Will paying off a merchant cash advance early save me money?
Usually not, although some of the more established lenders may be willing to offer a discount on a case by case basis.
Can I refinance a merchant cash advance?
Yes, if the holdback percentage is hurting your cash flow, or you need to extend the repayment period, a mca refinance could help your business. However, it will not reduce the amount you pay in total to the first merchant cash advance provider.
What happens if my sales dip after taking out a merchant cash advance?
Because repayments are taken as a percentage of sales, the amount you pay on the merchant cash advance will be lower if sales decline. However, if this means the MCA isn’t paid off by the time the repayment term ends you may have to refinance it or make a lump sum payment.
Does Shield Funding match competitive rates and terms?
This will depend on several factors, such as your sales and credit score. It is possible to get some of the most competitive rates in the entire industry, so call and speak to a representative.
What happens if I default on my merchant cash advance?
When you sign your merchant cash advance agreement it can include a clause called a “confession of judgement”, or it may require a personal guarantee. With the confession of judgement, you waive your right to due process. This means that if you default on your MCA, there will be no court hearing or way to dispute any of the lender’s claims. A personal guarantee gives the provider the ability to go after personal assets – a house, car, or investment accounts – to recoup their losses. Be sure to go over any concerns before closing on a contract.
Do merchant cash advance providers report to credit bureaus?
Unlike a traditional bank loan, MCA providers do not report on-time payments to credit bureaus. Your payment history will not help boost your score. However, they do report defaults.
What are the pros and cons to merchant cash advances?
Please see our article on mca pros and cons.
Is a merchant cash advance bad?
A merchant cash advance is a funding tool used by many businesses to meet capital needs. Like any type of loan or advance, it has pros and cons. It is not “bad,” per se, but small business owners should learn how a MCA will impact their business and have a plan to repay the advance.
