While not advisable as a long term strategy for accessing cash, an MCA might be the best option to take advantage of a short term business opportunity such as purchasing inventory at a discount. It might also be used by operations that conduct business almost entirely through credit or debit payments but don’t have a good credit score and so can’t qualify for other types of financing.

A quicker alternative to more traditional funding methods, a Merchant Cash Advance (MCA) can allow merchants to sidestep the lengthy approval process of other loan types and borrow cash against future sales. In fact, an MCA isn’t technically a loan, but rather, as the name suggests, a cash advance.

Once you’ve qualified, your MCA provider will lay out in the advance agreement the amount of cash they are willing to advance, the term of the advance, the holdback, and the repayment structure. The holdback is the percentage of daily credit or debit card sales which are withheld to pay back the advance.

MCA providers evaluate risk differently than banks and other financial institutions. While your credit score may be important, they will evaluate the amount of cash they are willing to advance by reviewing your daily credit or debit card receipts to determine your ability to repay the loan.

There are two main advantages to an MCA over other types of traditional business financing. First, the holdback amount will be in direct proportion to sales. When business is booming, the debt will be paid down quickly, but if business is slow, you won’t find yourself struggling to come up with fixed payments. Additionally, collateral is not required for an MCA.

Benefits:

• Lukewarm credit OK

• Relatively easy application process

• Quick access to cash

• Can be used for a wide variety of purposes

Drawbacks:

• Relatively high Annual Percentage Rate (APR)

• Payments reduce daily cash flow

• May be required to switch merchant service provider

Minimum Credit Score: 400
Minimum Time in Operation: 5 months
Minimum Revenue: $75,000 annually

Interest Rates on MCAs can be substantially higher than for other forms of business financing so consider carefully if this option is for you. Traditional business financing. First, the holdback amount will be in direct proportion to sales. When business is booming, the debt will be paid down quickly, but if business is slow, you won’t find yourself struggling to come up with fixed payments. Additionally, collateral is not required for an MCA.