Merchant Cash Advance

At a Glance

Merchant cash advances help businesses leverage their future revenue streams so they can receive present-day funding. This helps companies deal with sudden cash shortages or other difficulties, especially if they cannot use more traditional business loans based on capital.

Benefits & Drawbacks

Benefits:

-Dependable for businesses that may struggle to get other loans
-Avoids the risks of collateral

Drawbacks:

-Can be more expensive for businesses
-The amount is heavily dependent on revenue forecasts

Merchant Cash Loans Available

ACH Advance: This direct form of a merchant cash loan starts with the lender reviewing several months of business activity, noting your revenue and cash flows. The lender then sets a loan amount and advances the money. The business, in turn, allows the lender to withdraw money directly from the business account when it becomes due.

MCA Advance: This is a credit card-based loan that is provided based on past credit card revenue. A third party collects a percentage of credit card deposits throughout the life of the loan and uses them to pay back the loan. This may best in non-traditional, high-risk situations.

What Else Should I Know About Merchant Cash Loans?

Merchant cash loans are useful because they are typically very easy to acquire. Lenders know that they have an almost-guaranteed source of payment, so they are more willing to approve these loans (without requiring as much documentation). However, because these loans sap revenue and have high costs, they are often best used in emergencies or to cover unexpected, short-term expenses.

How Are These Loans Comparably More Expensive?

Cash advances traditionally have very high interest rates compared to other business loans, comparatively, but these rates vary greatly depending on the business and its revenue structure, as well as the decisions made by your lender. Also keep in mind the sunk cost of devoting future revenue to loan payments directly from your business bank account – you won't be able to control these automatic deductions.