Unlike traditional business loans, merchant cash advances (MCAs) do not require extensive documentation or collateral. The financing method is also easier to qualify for than a conventional small business loan, as it doesn’t involve a lengthy application process or strict credit requirements.
Nonetheless, this type of funding comes with high potential fees and may not suit all businesses. Alternatives like revenue-based financing offer lower fees and more flexible payment options.
1. Fast Approval
Merchant cash advances can be valuable financing tools for certain businesses. They work by giving financiers a cut of your business’s daily credit card processing revenue in exchange for a lump sum advance. These funding solutions tend to fund quickly but also come with higher costs than traditional loans.
Unlike many loan products, which investigate personal and business credit scores, MCAs focus on the amount of credit card processing volume your business generates to determine eligibility. This makes it easier for borrowers with poor credit to secure funding than they could with other loan options.
Depending on your industry and how many credit card sales you generate, approval amounts for an MCA may be as high as 100% of your monthly gross sales. This can make it expensive to repay an MCA, especially if your business experiences slow times.
2. Flexible Payment Options
Merchant cash advances have more flexible eligibility requirements than traditional loans. This makes them a popular option for restaurants, service businesses, and SaaS companies with recurring revenue models.
However, unlike business loans, the amount that is repaid each month depends on sales, meaning your payments decrease or increase when your sales go up or down. This allows you to better manage your cash flow.
Payment flexibility is a growing trend among consumers, especially younger ones. Providing BNPL options for your customers increases new customer acquisition and offers your commerce brand a point of differentiation with shoppers who want to buy now, and pay later. In addition, offering a variety of payment methods removes barriers to checkout and increases conversions and average order value. This makes it easier to meet consumer demand and stay competitive in the marketplace.
3. No Collateral Needed
Unlike traditional business loans and lines of credit, merchant cash advances do not require you to put up any collateral. Instead, lenders rely on the amount of credit card sales that are deposited into your business bank account each day.
Since a provider collects payments based on a percentage of your daily credit card sales, they can adjust repayment amounts to match seasonal or cyclical fluctuations in your company’s revenues. However, these flexible terms can also lead to a cycle of debt that’s difficult to break.
Additionally, MCA providers often charge high factor rates that are applied to the entire funding amount upfront. This means you won’t save any interest by repaying the advance early. Plus, this type of financing doesn’t improve your business credit.
4. No Minimum Requirements
The application process for a merchant cash advance is often very quick and easy. This is especially true for businesses with a recurring revenue model such as SaaS companies. Additionally, many merchant cash advance providers don’t require a lengthy business history.
Because merchant cash advances are not traditional loans, they typically have shorter repayment terms (as short as 18 months) and daily payments that can put a strain on a business’s cash flow. However, the fact that these payments are based on a percentage of future credit card sales rather than a fixed amount also helps reduce a business’ overall financing costs.
Because of this, many small and midsize businesses that don’t qualify for a loan can still receive funding through an MCA. However, it’s important to note that a merchant cash advance does not report to the business credit bureaus and will not help build your business credit profile.
5. Low Interest Rates
Merchant cash advances are repaid with daily deductions from credit card sales and don’t require a specific repayment term like other business loans. However, this repayment structure makes them more expensive in terms of interest rates than traditional bank loans. In fact, some MCA providers use a factor rate, which is much higher than the equivalent APR of a traditional loan.
This unique financing option is especially popular for businesses that rely on consistent credit or debit card sales or recurring revenue, such as restaurants, retail stores, and SaaS companies. Additionally, it often has more lenient requirements for credit and business history than other business loans. However, these advances are not federally regulated and can come with high retrieval fees and other fees. These can deter some business owners.
Final Words
Bitx Capital can assist you in getting merchant cash advances through its network of reliable lenders, offering your business quick and flexible funding options. With their extensive experience, they provide tailored financial solutions to meet your unique needs. By choosing Bitx Capital, you gain access to capital that allows you to manage cash flow, invest in growth opportunities, and ensure your business continues to thrive in a competitive market.
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