How to Use a Merchant Cash Advance for Business Financing

A merchant cash advance is a progressive financing method growing in popularity, likely due to increasing volumes of credit card transactions handled by small businesses. A savvy business owner is probably wise to be skeptical of the “fast cash, easy approval” nature of modern funding solutions. However, research and consideration may show that for some circumstances, an MCA might be perfect.

The Basics of a Merchant Cash Advance

An MCA is typically defined as an advance cash purchase of a client’s projected credit card sales. Instead of expecting a set weekly or monthly payment, the funding company will automatically deduct a percentage of the client’s actual credit card transactions. When sales are up, the loan balance comes down faster. If sales take a downturn, there is virtually no worry of a client failing to fulfill its obligation, even if it is for a much smaller amount.

An MCA approval process is typically fast and easy – most payments arrive within three days of the initial application. The funding company will concentrate most of the focus on a business’s cash on hand and sales trends; collateral is generally not required. Funders rarely consider credit history, so companies with lower credit ratings and strong sales can still receive funding.

Ideal Uses for an MCA

Companies that are often best able to handle a merchant cash advance have a history of consistent cash flow that easily supports regular business expenses. Appropriate uses for an MCA are generally any growth projects which will augment a company’s existing revenue stream. Several examples are:

  • Boosting a marketing campaign
  • Location expansion
  • Hiring and training new employees
  • Stocking inventory for a busy sales season

When an MCA May Not Be Best

A company should determine if it can support its daily operation on reduced credit card revenue before applying for an MCA. If the answer is no, an advance could do the company more harm than good. A business that is struggling to develop or overhaul its business model or that don’t have consistent and predictable sales trends may be hurt by declining revenues reduced further by MCA repayments. Although MCAs are often ideal for growth projects, financing significant company developments or improvements which may cause a halt or drop-off in sales transactions might be better with a different financing solution.

A merchant cash advance might not be ideal for every company, and as with all financing products, it is often vital to undertake it responsibly. If an MCA sounds like a fitting way to take your business to the next level, it can be a fast and easy way to fund the growth.


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