Merchant Cash Advance

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How to Use Merchant Financing to Grow Your Business

Access to capital and funding is crucial to all businesses; however, it’s not always easy for small businesses to apply for financing because few options exist and the application process for traditional loans is complicated and time-consuming.

Fortunately, online lenders offer alternative small business financing solutions, such as merchant cash advances, to bridge the gap. This page will discuss what merchant cash advances are, how they work, and how you can use them to grow your business.

What Can You Use a Merchant Cash Advance For?

Debt doesn’t have to be a scary word, especially in the business world. Although you need to be mindful not to carry too much debt, borrowing money can also help your business succeed. Here are a few ways you can use an MCA to meet your current business needs or expand your operations.

Inventory Needs

As a business, you need products to make sales. Buying inventory in bulk can save you money through discounts, but it can use up most of your capital. Instead of depleting your cash reserve, you can use an MCA to stock up, update your product lines, and meet customer demand.

Unexpected Costs

When emergencies and unanticipated expenses arise, they can wreak havoc on a business’s cash flow. An MCA offers a way for your company to access cash quickly. It’s an excellent option for short-term relief so you can take care of your needs promptly.

Pandemic Assistance

Short-term relief has been essential for business owners during COVID19. Some business owners have had to buy expensive PPE to keep staff safe, while others have experienced a change in revenue. If you’re experiencing hiccups in your business cycle due to coronavirus, you may be eligible for a pandemic loan.

Making Payroll

Finding the right talent is half the battle of running a successful company. Having to let staff go prematurely can hurt a business’s bottom line. Financing helps owners avoid unnecessary layoffs and furloughs.

Purchasing and Renting Equipment

Getting equipment can be expensive. To avoid eating up cash reserves, owners have the option of financing their purchase rather than buying machinery out-right. Using a merchant loan can help you avoid tapping out your cash buffer. That way, you still have a financial safeguard for the ups and downs that come with running a business.

Commercial Rent

Maintaining a physical store location often comes with a whole slew of additional fees and expenses. When revenue temporarily dips, additional funds can help you make rent on time.

Operational Costs

Working capital refers to everyday business operating expenses, such as rent, wages, and utilities. An MCA can help you catch up on temporary cash flow gaps so you can pay your rent and bills on time to avoid late fees or have enough money to pay your employees.

Growth and Expansion

You can also use borrowed funds to grow and expand your business. Whether you need to purchase equipment or hire new staff members, you can use an MCA to make it happen. Invest in your business and stay ahead of the competition.

Taxes

Sometimes, owners run into the issue of owing more than expected come tax season. When in a bind, MCAs are a good option for bridging short-term cash flow gaps. Instead of using your nest egg to pay the IRS, you can repay owed funds with a portion of your future sales.

Onboarding Employees

Bringing new staff members on is no cheap feat. Business cash advances can be used for training hires and securing top talent. Investing in the right employees can help small businesses achieve larger initiatives.

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What Is a Merchant Cash Advance?

A merchant cash advance (MCA) provides a business cash upfront in exchange for a percentage of its future sales. It’s an alternative financing option for business owners to get funding without collateral or personal credit requirements. An MCA is also called a credit card processing loan because it’s commonly utilized by companies that accept payments through a business merchant account.

As the name suggests, MCA isn’t a loan but an advance based on a company’s creditworthiness, future sales, and past debit card and credit card sales. When you apply for an MCA, you and the lender agree on an advance amount, a payback amount, and a holdback percentage. The agreed-upon holdback percentage is withheld from your daily sales as payment and the holdback percentage will apply until your balance is paid in full.

The payback amount will depend on a factor rate set by the lender based on their risk assessment of your company’s creditworthiness. The factor rate is inclusive of fees and interest rates; you multiply the cash advance by the factor rate to get your total repayment amount. The higher the rate, the higher you pay.

Repaying an MCA back depends on your daily revenue. Thus, with more sales, you can pay back the advance faster. You’re not obligated to pay more if you’re experiencing low sales but it does prolong the repayment period.

What Types of Businesses Use Merchant Financing?

Merchant financing is best for businesses looking to fund a profitable opportunity to generate revenue, like the bulk purchase of quick-turnaround inventory. An MCA is also a great financing option for companies that are borrowing to expand their operating capacity through the acquisition of machinery or to bring in extra help during peak season. Businesses that utilize merchant financing include:

  • Retailers, distributors, and suppliers
  • Transportation companies
  • Service-based businesses, like hair and nail salons
  • Bars and restaurants
  • Specialty trades
  • Auto repair shops

An MCA is a great option for businesses that process a high volume of credit card transactions. Before taking on any business financing, make sure you understand the costs associated with your loan. In addition, ensure you have enough cash flow to make payments, especially since an MCA needs to be paid back daily.

5 Things You Need to Have for Merchant Financing Approval

The application process for merchant financing is quick and easy — far from the complicated and long process of traditional small business loans. Once your financing is approved, you can typically receive the money in your bank account within one to two business days. Check out the requirements below to determine if you can get approved for an MCA.

Financial Documents

To get started, fill out an application online or call Clarify Capital at (877) 838-3919. You’ll then be matched with a dedicated adviser who will walk you through the entire process. Here are the general requirements and documents we may request:

  • Your Social Security number or employer identification number (EIN)
  • Bank statements, credit card statements, or payment processing data from the last three months
  • Tax returns
  • Financial statements, such as a balance sheet or a profit and loss (P&L) statement

Length of Time in Business

Loan providers use the length of time you’ve been in business to assess your creditworthiness and their risk of not getting paid. An established business typically translates to lower risk on their part. To qualify for a merchant financing loan, most lenders require that you’ve been operating for at least six months.

Monthly Income

Lenders look at your monthly income to determine if you have the cash flow to pay them back. They also use it to calculate your loan amount. Most MCA providers ask that you have at least $10,000 in monthly revenue. Obviously, if you’re bringing in more than the minimum requirement, your chance of getting approved for a larger amount is also higher.

Credit Rating

Your credit rating represents your payment history, the amount of debt you have, and the length of your credit history. As a business owner, you should continually monitor your personal credit score because it’s one of the factors lenders check whenever you apply for loans.

At Clarify Capital, we look at each client holistically to determine eligibility, and we provide funding to applicants with good and bad credit scores. This is why you might be eligible for an MCA if your credit score is at least 550. Strive to have a higher credit rating, though, because it typically helps borrowers get better interest rates and repayment terms.

Debt-to-Income Ratio

The debt-to-income ratio is a metric used by financial institutions like banks to compare the amount of debt you have against your overall income. MCA companies use the debt-to-income ratio to measure and calculate what you can reasonably afford to pay. As a result, someone with a lot of debt is usually considered a riskier applicant. Ideally, lenders want borrowers to have a low debt-to-income ratio because it means they’re more likely to make their monthly payments on time without difficulty.

Best Cash Advance Funding Alternatives

Whether an advance loan is right for you depends on your unique business goals and preferences. We’ve outlined the most popular business financing solutions below for owners who want to explore other options:

Short-Term Loans

Term loans are a good fit for owners who want predictable and regular payment schedules. You receive a lump sum of money and pay interest on the total amount financed. Unsecured loans do not require collateral.

Invoice Factoring

Commonly referred to as invoice financing, factoring works similar to MCA loans. The key difference here is that the funds you receive are based on account receivables, rather than merchant sales.

Business Line of Credit

Credit lines provide flexibility and maximum control. You only pay interest on the capital you use, rather than the total amount you’re eligible to receive. Owners can draw from an available pool of funds on an as-needed basis, as things come up.

Equipment Loans

Equipment financing makes sense for business owners who need to buy or rent machinery and equipment. Borrowers with bad credit can be approved. These loans do not require down payments or collateral.

Grow Your Business With Merchant Financing From Clarify Capital

The main advantage of a merchant cash advance is access to quick and easy financing without giving up personal or business assets as collateral. This is because MCA lenders emphasize past credit card sales and future sales. With an MCA, you’re also not restricted with how you can use the funds you receive.

Cash advances are an excellent funding option for small business owners who need capital but who may have less-than-stellar credit ratings. Apply today to determine if you qualify for a merchant cash advance with Clarify Capital.



Frequently Asked Questions about MCAs


Both deal with cash advances, but how the advances are calculated is different. With merchant loans, you receive an up-front sum of money based on future sales. With factoring, you receive a capital advance based on accounts receivables.
Factor rates are used to calculate how much you’ll be responsible for paying back. The decimal figure is multiplied to determine the total amount owed. These are different than interest rates, which are expressed as a percentage.
Technically, MCAs aren’t loans - they’re advances. Despite this, many people use the term credit card processing loans to refer to merchant advances. These terms are often used interchangeably.
Yes! If you have bad credit, you may still be eligible for a business cash advance. A Clarify lending advisor will go over qualification criteria with you in more detail when you apply online.
Lenders “holdback” a percentage of your sales as payment for what you owe. Rather than paying funds directly to the lender on a fixed schedule, a certain percentage is taken off the top of card sales, until the total amount you borrowed is paid off.

Types of companies have recently secured business cash advances from Clarify:

  • check Contractors
  • check Distributors
  • check Bars
  • check Hair and Nail Salons
  • check Specialty Trades
  • check Dentists
  • check Florists
  • check Barbers
  • check Health Care Providers
  • check Transportation Companies
  • check Retailers
  • check Restaurants
  • check Suppliers
  • check Auto repair shops

Qualification Requirements

  • keyboard_arrow_right At least 6 months in business
  • keyboard_arrow_right $10,000 in monthly revenue
  • keyboard_arrow_right Credit score of at least 550

Note: These are general working capital loan qualifications. Other information might be considered by lenders. Your dedicated Clarify advisor will walk you through it!
Construction business loans

"I contacted Clarify Capital when I had an opportunity to bid on a new construction and roofing opportunity. Without the quick cash advance provided by Clarify, I would not have been able to buy the materials and hire the labor necessary to complete the job. I know that I can count of them in the future to help support my company’s growth."

George
Roofing Contractor
Indianapolis
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