A MERCHANT CASH ADVANCE is a structured as a lump sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales. The term is now commonly used to describe a variety of small business financing options characterized by short payment terms (generally under 24 months) and small regular payments (typically paid each business day) as opposed to the larger monthly payments and longer payment terms associated with traditional bank loans. The term "merchant cash advance" may be used to describe purchases of future credit card sales receivables or short-term business loans.
Merchant cash advances are most often used by retail businesses that do not qualify for regular bank loans and are generally more expensive than bank loans. The use of a merchant cash advance is access to capital without the stringent controls or requirements of a bank.
SpotOn Financial merchant cash advance for small business owners.
Merchant cash advances are one of the fastest forms of small business financing available. The application process is a cinch; you usually just need to submit a few months’ worth of credit card and bank statements. If you apply online and are approved, money can be in your business’ bank account in as fast as 24 to 48 hours.
Small business owners who take out MCAs repay lenders by giving them a fixed percentage of credit card receipts each month (e.g., 10%). You won’t have to worry about being unable to repay an installment in the event sales are slower than expected because lenders take a fixed percentage of your receipts no matter how high or low they are.
Securing a traditional small business loan from a bank usually requires having a near-perfect credit score. MCAs offer no such stipulations. Lenders are more interested in the future of the borrower’s business—not the past.
Some small business financing options require borrowers to put up collateral (e.g., property or equipment) in order to secure funding. In the event the borrower is unable to repay the loan, the lender can recoup their costs by selling the collateral. MCAs enable small business owners to finance their operations without worrying about losing their property in the event things take a turn for the worse.
When you’re approved for a merchant cash advance, you’ll need to repay the loan plus the factor fee the lender charges. You’ll know up front precisely how much money you will need to pay back in order to settle your account. With MCAs, there’s no such thing as late fees and interest never accrues.
Merchant cash advances are quite expensive. In fact, according to one estimate, MCAs can have annual percentage rates (APRs) as high as 350%. Business owners that go this route are pursuing one of the costliest forms of financing.
While MCAs can certainly help some small business owners solve temporary cash shortages, it’s not a long-term solution. How can you expect your business to get to the next level when someone’s eating into your profits every single day?
Many MCA lenders deduct funds from your credit card receipts on a daily basis. If you need small business financing because you’re experiencing cash flow problems, it doesn’t make a lot of sense to borrow from a lender that is eating into your revenue every day.
Merchant cash advance lenders operate in a largely unregulated market, which enables them to charge hefty interest fees. Some industry analysts, however, believe that it’s only a matter of time before MCAs become regulated. In any event, since they’re currently unregulated, there’s no one looking out to make sure borrowers are getting a fair deal.
Some MCA providers will only lend money to businesses if they agree to operate under certain guidelines. For example, they may not allow borrowers to encourage their customers to pay in cash. They might not also allow you to close your doors for an extended period of time (e.g., take a month-long vacation) until the loan is repaid.
The Merchant Cash Advance is not a cure all to business financing needs. When considering this as an option you have to look at this funding in the move favorable light to its use. You do not use a merchant cash advance as long term debt financing.That is not what it was designed to do or what it's intended use. The merchant cash advance is short term immediate financing for a business when traditional financing is unavailble, will take to long to obtain, or the loss to the business is greater than the cost of the merchant cash advance. There are many other forms of financing available, it comes down to the borrower qualification and the lender guidelines.
SpotOn Financial can provide you access to the merchant cash advance as well as help you develop a long term structured financing solution for your business.
The following are the minimum underwriting guidelines for a merchant cash advance. Although these are not all of the factors. SpotOn Financial reserves the right to decline, approve, or modify any offer to a merchant either directly or indirectly. By submitting an application there is no implied offer to provide financing or agreement to provide financing.Offers void where prohibited.
Time In Business:
6 months time in business-standard
12 months time in business-preferred
Monthly Bank Deposits
$15,000 minimum deposits- Standard
$25,000 minimum deposits-Preferred
Overdrafts/Non Sufficient Funds
Less than 5 in past 3 Months-Standard
Zero in the past 6 Months-Preferred
Tax Related Issues- Less than $25K- Standard
Tax Related Issues-Zero dollars-Preferred
Liens- No more than 2-Standard
Late Payments-No more than 3 in past 3 months-Standard
Late Payments-Zero in the past 6 months- Preferred