Merchant Cash Advances for Small Businesses

 Small businesses lacking a working relationship with a traditional lender often find that merchant cash advances are the only way to get the cash they need to grow their business.


In the today's weakened economy, many businesses are increasingly resorting to alternative sources of funding, like merchant cash advances (MCA), to provide the cash they need to maintain or grow their business. In partial response to the current climate of tightened loan qualification requirements, many small businesses feel that they've been abandoned by traditional lending sources. Even though the cost of borrowing money might be quite steep at loan services like merchant cash advances, many businesses are apparently feeling it is the only way they can stay afloat.

A study of businesses using merchant cash advances recently conducted by Merchant Cash and Capital (MCC), found that the nearly half (42%) of those enterprises using merchant cash advances did so because they didn't think they could meet the qualifications for financing from traditional lenders.  Another 57% of the small businesses using merchant cash advances had already tried to obtain traditional loans, and were summarily declined. The survey also found that 32% of the merchant cash advances taken out by small businesses in the U.S. were utilized primarily for expansion and growth, and 15% of the loans were used for the purchase of additional inventory. The other main business uses for the advances were found to be payroll, paying taxes and bills and marketing, in that order.

Most merchant cash advances are considered quick money that is usually available within just one week. Almost all fall into the category of unsecured cash advances that are based on a merchant's volume of credit card charges alone. This means MCA's are unlike traditional loans, and require no collateral and there are generally no requirements as to how the cash will be utilized. A typical MCA lender will loan a business an amount equal to between 100% and 200 % of a company's monthly credit card charge volume, and the total cash available can range from $2,500 up to $250,000 in most instances. The only real stipulation required by most MCA lenders is that a business must have a minimum monthly credit card volume of $5,000.

The repayment requirements for most MCA programs are usually between six and 12 months, during which time the lender will collect between 10% and 45% of a business's total daily credit card receipts until the advance is paid back in full. The money is not cheap however, and the interest rates can be very high. For example, an MCA paid back over seven months at a rate of 33% translates to an overall interest rate at a whopping 56%. Because the money is so expensive to borrow, only those businesses that must have fast funding and lack a relationship with a more traditional lender can make effective use of an MCA as temporary bridge or 'gap' financing. In this way, merchant cash advances can be used as effective business tools, even if they are generally viewed as financing of the last resort. It would be better if a business did not need the loan at all of course, but when they do, MCA's can sometimes be the only viable solution on the table.

Contact Us

Copyright © 2017 Cash.com