Financing Options
These different levels of merchant cash advances and similar financing options cater to varying types of businesses, from those needing quick, flexible funding to those that qualify for more traditional, lower-interest loans.
As a provider, understanding the specific needs of a business and offering the appropriate level of financing can ensure that businesses get the capital they need to continue operations, grow, and succeed
Elegibility
To qualify for funding, a business must meet several essential criteria that reflect its financial health and operational stability. The business must have an active business bank account, ensuring transparency and the ability to process transactions. It must also have been operating for at least six months, demonstrating a track record of consistent activity. Additionally, the business should generate a minimum of $20,000 in monthly revenue, indicating sufficient cash flow to support funding and repayment. These requirements help ensure that the business is well-positioned to benefit from and responsibly manage the capital it receives.
1
Standard Merchant Cash Advance
This is the most common type of MCA. A business receives a lump sum of cash in exchange for a percentage of its future credit card sales or daily revenue. Quick Application and Approval process, often without the need for a traditional credit check. Repayments are based on daily sales, so they fluctuate with the business’s performance. Typically aimed at small to medium-sized businesses with consistent credit card sales or daily cash flow.
2
High-Risk MCA
This level is designed for businesses that are considered higher risk by lenders, such as those with poor credit history, previous defaults , debt issues or cash flow. The terms are similar to a standard MCA but with higher rates. There is a higher cost of capital due to the increased risk. Daily or weekly repayment terms, based on sales or cash flow. Typically aimed at businesses with irregular cash flow, poor credit, or those in high-risk industries.
3
Low-Risk MCA / Prime Merchant Cash Advance
This level is for businesses that are considered low risk, typically those with strong credit histories and consistent revenue streams. The terms are generally more favorable. The cost of capital is lower than the standard MCA, as the business is deemed less risky. The business repays a small percentage of daily sales, which makes the repayment process easier during slower periods. These agreements can extend for 12 to 24 months, allowing for a more manageable repayment schedule. This has lower origination fees and overall costs due to reduced risk for the lender. This option is targeted to established businesses with stable revenue, high credit scores, and predictable cash flow.
4
Revenue-Based Financing
Revenue-Based Financing is similar to an MCA but broader in scope. Instead of relying solely on credit card sales, the business’s total revenue (from all sources) is used to calculate the repayment terms. Payments are based on a percentage of total revenue, not just card sales. This allows for a more flexible repayment structure than traditional loans, especially during slower months. Businesses can often access higher amounts of capital, as repayments are tied to overall revenue. Generally, no assets are required as collateral, just future revenues. Aimed at companies with diverse revenue streams, such as those with both credit card sales and other income sources.
5
Merchant Line of Credit
A Merchant Line of Credit (MLOC) gives businesses access to a revolving line of credit, allowing them to borrow as needed, up to a predetermined limit. Borrow funds as needed, and pay them back over time with interest. Repayments are typically weekly or monthly, based on the amount drawn. Often lower interest rates compared to standard MCAs, especially for established businesses. Businesses with strong financials are more likely to qualify for larger credit limits. This service is aimed at growing businesses with stable financials that need ongoing access to funds for operational flexibility.
6
Factor Advance (Factor Loan)
In a factor advance, the business sells a portion of its receivables (outstanding invoices) in exchange for immediate funding. This is a different type of cash advance, as it’s tied to accounts receivable rather than future sales. Instead of sales or revenue, the business’s receivables are used as the basis for the loan. Typically repaid once the invoices are paid, often within 30-90 days. Similar to MCAs, the fees can be high, especially for businesses with slow-paying customers. The receivables themselves serve as collateral, so no other assets are typically needed. This option is targeted to businesses with significant outstanding invoices and a need for immediate working capital.
7
SBA Loan (Guaranteed by the Small Business Administration)
While not an MCA, some MCA providers may also offer access to SBA loans, which are government-backed and offer much more favorable terms than MCAs. SBA loans typically have lower interest rates compared to other types of small business loans. Repayment terms can span 5 to 25 years, depending on the loan type. These loans require more paperwork and have stricter eligibility requirements. This option is targeted to established businesses with strong credit and a solid track record that need larger amounts of capital for long-term growth.