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Loanspark, a business lending as a service provider and marketplace that helps businesses find the best lending solutions for their revenue needs.
Merchant cash advance (MCA) programs offer business financing as an advance against future credit card sales. As one of the costlier business financing options out there, MCA’s are often waved aside as not worth it or even predatory.
But there are times when an MCA may be the best option to get the funding and cash flow boost you need for your business, especially through a reliable lender or marketplace. Here are five situations in which applying for an MCA may make sense for your business.
1. You struggle to qualify for financing
Because the amount you qualify for is based on past revenue and credit card sales, there’s less risk involved for the lender, which means your chances for qualifying for an MCA may be higher. General requirements for an MCA include:
$150,000 in annual income
One year in business
550 or higher FICO score
You may still qualify if you don’t meet these requirements, but you’ll likely pay higher fees and experience a higher overall cost.
With flexible requirements, you’re much more likely to qualify for the funding you need. For example, Loanspark, a lending marketplace offering MCAs up to $20 million, states it has an 80% approval rate for businesses that receive the majority of their revenue via credit card processing.
2. You need quick cash flow
The application process for an MCA is quick and straightforward, requiring little to no documentation. If the lender allows you to apply online, your funding may be available within 24 to 48 hours. A bank loan, on the other hand, can take days or even weeks to fund.
If you need money to face down a slow stretch or business emergency, having the money available as soon as possible can make the extra expense of an MCA worth it.
And if you need help finding a lender that can turn around your application the quickest, using a lending marketplace like Loanspark can help. A single application can give you access to Loanspark’s extensive network of hundreds of lenders, with decisions made as soon as the same day. You choose the offer that works best with your needs and pocketbook.
3. You need flexible repayments
An MCA is especially good for businesses with fluctuating revenue because MCA lenders work with your credit card processor to get paid. They do this by withholding a fixed percentage of your daily credit card sales and sending it to your lender to pay off your advance — which is the amount you borrow multiplied by your factor rate.
For example, if you take a $30,000 advance for six months with a 1.25 factor rate, the total you owe is $37,500. Each withheld percentage from your credit card sales, which is called a “holdback,” becomes a payment against your debts.
For example, if your holdback percentage is 10%, and you make $10,000 in sales a day, you’ll receive $9,000, while the remaining $1,000 is sent to your MCA lender. In this way, your payments are as flexible as your income. So, if your sales drop to $5,000 the next day, your lender receives $500 for that day. And if you make $2,000, they’ll get $200.
Knowing that you won’t be penalized or default on your loan after a bad sales period can alleviate a lot of the financial pressure. While each MCA repayment plan may be built differently, marketplaces like Loanspark offer maximum flexibility, with MCAs offering daily, weekly and monthly fixed and variable repayment options.
4. You have a seasonal business
In the same way, a seasonal business can find repaying an MCA more in line with their business income compared to a traditional business loan. The lender only gets paid when you do. A slow season means less of your advance is paid off than when you have a busier season. The percentage of your sales continue to be held back until your entire loan and fees are repaid.
5. You want to cover various financial needs
While some business loans require you to specify what you’ll use the money for or place restrictions on how your funds can be used, an MCA has no restrictions. What you need to purchase or how you use your funds is up to you and doesn’t determine your eligibility or the amount of money you qualify for.
Bottom line
Not all MCA’s are the same. But knowing that there’s a potential for costly financing, it’s important to ensure you’re getting the best deal. Whether you use a lending marketing place like Loanspark, a comparison site, or do your own homework one lender at a time, comparing the rates, fees and terms of your advance is vital to ensure you get the best deal on the financing you need.
Heather Petty was a personal finance writer at Finder, specializing in home and personal loans. After falling victim to a disreputable mortgage broker when buying her first home, she’s on a mission to help readers avoid similar experiences when managing their own finances. A self-proclaimed word nerd, her writing and analysis has been featured on MSN, Credit.com and MediaFeed, among other top media. Heather previously worked as a technical writer and editor for the casino systems industry and is an internationally published young adult mystery author. She earned a BA in English with a minor in journalism from the University of Nevada, Reno. See full bio
Heather's expertise
Heather has written 93 Finder guides across topics including:
How bundling your debts into one monthly payment can help your business take control of its finances.
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