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Published on Januar 31st, 2022 | by Sarah

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How to Qualify and Apply for a Merchant Cash Advance

How to Qualify and Apply for a Merchant Cash Advance

  • Repayment based on your sales: Whereas repayment on a traditional business loan remains the same regardless of how your business is performing, your MCA payments will vary based on your business’s sales. If your business has a slow period, you’ll be paying less on a daily or weekly basis. For this reason, MCAs are often used by seasonal businesses, retail shops, and restaurants.

First and foremost, you’ll need to find a merchant cash advance company to work with

  • Higher fees than most other loans: We can’t stress this point enough—at the end of the day, a merchant cash advance will be one of the most expensive forms of business funding. Although the rates and terms of an MCA may seem reasonable, when you look further (and calculate the APR), you’ll see that rates significantly exceed any other type of financing. Plus, as we mentioned above, even though businesses with lower qualifications can get approved for MCAs, they’ll face the highest rates, which makes it difficult to repay the capital they’ve borrowed.
  • Daily deduction of credit card sales reduces cash flow: Again, although a benefit of merchant cash advances is that payments vary based on your sales, the actual structure of an MCA makes it difficult on a business’s cash flow. Because you’re repaying an MCA so frequently, and directly from your incoming sales, this type of financing significantly impacts your cash flow. Additionally, because of the way a merchant cash advance works, there’s no advantage to repaying your loan early—a perk of many other types of business funding.
  • Easy to end up in a debt cycle: As you may have inferred based on our last two points, it’s very easy to end up in a debt cycle with a merchant cash advance. If you’re a less qualified business in need of financing, an MCA may seem like your only option, but with high fees deducted straight from your cash flow, it can be difficult to repay. Therefore, many borrowers attempt to refinance or add another MCA, which only leads to further financing issues and a risk of default.
  • Confusing contracts and little regulation: Another common problem with MCAs is that due to the way they’re structured—with factor rates, percentages of daily sales, and no specific terms—their contracts can be extremely confusing and business owners may sign them to get funds quickly without fully understanding the agreement. Additionally, because merchant cash advances aren’t technically loans, they don’t face the same regulations as other types of business financing. Historically, this has led businesses to fall victim to misleading sales tactics and advertising, especially from merchant cash advance brokers who approach them promising fast funding and easy approvals.

Qualifications for a Merchant Cash Advance

Ultimately, it’s up to you to determine whether or not a merchant cash advance is right for your business. If you think the fast funding and flexible qualifications outweigh the cost, you’re likely wondering how to start the application process.

Due to the lack of regulation in the MCA industry, you’ll want to ensure that the company you choose is trustworthy and reliable. It can be helpful to read company reviews and talk to other business owners who have worked with them.

First and foremost, you’ll need to find a merchant cash advance company to work with

  • Reliant Funding: Offers MCAs up to $400,000 with factor rates varying based on your qualifications
  • Credibly: Offers MCAs (and working capital loans) with factor rates starting at 1.15
  • Kalamata Capital Group: Offers MCAs up to $500,000 with factor rates starting at 1.20

Once you’ve found a company, you should be able to apply online, quickly and easily. The qualifications are typically flexible—even if you have bad credit or little time in business, you’ll likely still be able to get approved for a merchant cash advance.


About the Author

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