Own a B2B e-commerce business? Click here to learn more about Tabit, a NEW B2B Buy Now, Pay Later financing option! Learn More

How Does a Merchant Cash Advance for Small Businesses Work?

female merchant using touchscreen computer

When your small business needs an alternative to loans and lines of credit, a merchant cash advance (MCA) could be the perfect alternative. 

But what is this financial product exactly? How does an MCA differ from a loan if it provides the borrower with money? How does a merchant cash advance work? Below, our team explains and discusses how this useful product can help your business maintain its operations at full speed, even during a cash crunch.

person filling out form

What is a Merchant Cash Advance?

A merchant cash advance is an alternative to traditional bank loans. A merchant cash advance is not classified as a loan, since it involves the sale of future revenue. As a result, it has its own terms and follows different regulations than that of a traditional loan. It’s also a quicker and easier way to get funds than applying to traditional banks that have a rigorous and a slow approval process.

When using an MCA, a lender provides the small business owner with a lump sum upfront. To repay the merchant cash advance provider, the owner promises them part of their business’ future credit card sales and debit sales each day. 

Small business owners will not owe anything until they generate sales in their business, and depending on the type of business and the terms of the MCA, the principal amount can be paid back daily, weekly, or on some other schedule.

What Type of Small Business Should Use a Merchant Cash Advance?

Merchant cash advance companies offer this financial product to businesses that:

  • Have a high volume of debit and credit card sales
  • Need funding right away
  • Do not qualify for a traditional small business loan 

When loans and lines of credit aren’t an option, a merchant cash advance can provide significant relief from financial hardship and stress.

female business owner misting flowers

How Can Small Businesses Benefit from Merchant Cash Advances?

Now that you know what a merchant cash advance is, there are several ways a business can use it:

  • Pay debts
  • Purchase inventory
  • Update equipment
  • Hire staff
  • Renovate or relocate your business
  • Pay suppliers
  • Advertise

Merchant cash advances are designed to match the fluctuating sales that small businesses—like those in retail—experience. Since the cash advance doesn’t have a fixed amount due each month, the lender collects a different payment amount each month. 

Therefore, repayment from your sales can be less when you are in a slow season, and increase as your business experiences more volume. While the provider will receive a different monthly amount, they will still take the same percentage from your sales. This flexibility allows for a stable cash flow, even in businesses that experience regular sales volatility.

Small business loans are not as flexible. If you use a small business loan, you will be stuck with a fixed repayment amount on a schedule that could end up negatively affecting your business bank account during slow periods.

Note: Using a merchant card advance does not build business credit like loans and lines of credit do. Additionally, it is not typical for providers to report your repayment history to business credit bureaus.  

What to Expect from Merchant Cash Advance Companies

There are a variety of merchant cash advance providers out there. Some cater to businesses with thin business credit or bad credit, while others offer high interest rates. Be aware that some providers will charge an origination fee and have higher than average factor rates, resulting in an annual percentage rate (APR) in the triple digits.

At Merchant Growth, we offer Flex and Fixed Financing solutions to accommodate businesses with differing operations and needs. We’re here to give small business owners the best solution.

two young businessmen using laptop

Get Your Cash Advance from Merchant Growth

We help many types of small businesses with their cash flow problems. Our alternative financing options ensure that your business needs are taken care of in the best way possible. Receive funding for business growth within 24 hours as long as you meet our minimum requirements:

  • The business is located in Canada
  • Your monthly revenue is $10,000
  • You have been in business for six months

Remember that a merchant cash advance is designed for businesses that take credit card payments. Still not sure which financial loan product is right for your situation? Contact us today!

If you think a merchant cash advance is right for you, apply now!

Share This Story, Choose Your Platform!

Get started today

Complete our online application and we’ll contact you to present financing options tailored to your business needs.