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Everything You Need to Know About Merchant Financing

Cash flow and other financial needs can be a primary area of concern for businesses of all sizes from time to time. Even a profitable business can experience turbulence, resulting in a financial crunch in various circumstances. There are many times when you have to deal with multiple things, such as payroll, inventory, space rent, and more while you are dealing with financial issues.

Almost every business owner has been in such a position, where it becomes essential to get financial help. As a business owner, it might get difficult to maintain a steady cash flow if you are running a seasonal business or if the monthly sales are not close to what you expected. However, getting financial help is easier said than done when you actually need it. For instance, if we talk about small businesses or those companies that recently entered the market, they will not qualify for traditional bank loans. Let’s suppose even if they get approved for a bank loan – they come with stricter terms followed by a time-consuming project. There is a higher possibility that you go out of business before you get access to the funds. Thus, in such instances where money is tight and you need financial help – merchant financing is the right solution for you!

Let’s clear one thing first – merchant financing is not a type of loan. It is considered as a cash advance that is provided by payment processing companies or third-party financing solutions. The provider will agree to provide you quick access to funds by paying money up front in return for your business’s future credit card sales and receipts. The provided amount is recouped on a daily, weekly, or monthly basis. Apart from this, you are not bound to make fixed monthly payments. Instead, the repayments will be made automatically as the provider will be linked to your merchant processor to deduct a certain percentage from the daily sales you make. Thus, there is no requirement of writing checks anymore.

Read More: Finding the Best Lenders for Small Business Loans

The merchant financing sector has been affected by the financial instability and prevalent restrictions regarding commercial credit across the globe, and specifically in the US. Depending on businesses, merchant finance could mean different, but its sole purpose is to provide quick access to upfront cash for business purposes. Merchant Financing is provided in a short span of time and is considered as a short-term funding plan that has to be repaid within one or two years.

Types of merchant finance

The most common types of merchant financing options are as follows:

•    Working Capital Loan: One of the most common financing options for small businesses is working capital loan. Typically, organizations looking to obtain this type of loan to cover their day-to-day activities and other ongoing financial needs including purchasing equipment, payroll, and more. A working capital loan comes in handy at times when the receivables are not in that disturbs the overall cash flow. Usually, businesses are working off a net 30 and net 60 arrangement, they are bound to make upfront payment followed by waiting for the job to complete. If we talk about retail businesses like restaurants, the business owners have to make weekly payments to vendors. However, the purpose of a lent working capital loan is to ensure finances are available where there is low cash flow.

•    Long-Term Financing: This type of merchant financing is used by businesses when they need to make longer-term purchases and require a higher amount than usual. This could include finances to purchase an office area or building, expensive equipment, or launching a new project. Apart from this, the funding time along with loan duration is longer when compared to other financing and loan options because there is extensive underwriting involved.

•    Merchant Cash Advance: An MCA is the most used and preferred form of merchant financing. This option is mostly selected by small businesses and startups who have been in businesses for a year at least. It does not matter whether you have a good or bad credit score, or a bad debt history – MCA lenders facilitate almost every business if their average monthly credit sales are more than enough to repay the amount borrowed. A merchant cash advance is not considered as a loan, but the biggest disadvantage for a business is that they are forced to switch credit card processors to obtain financing for their companies.

Merchant Cash Advance – the right funding solution for small businesses

Yes, it is true! Almost all small business owners consider merchant cash advances as a viable source to obtain finances for their businesses. Whether they need funds to purchase equipment, increase the amount of working capital, or manage daily expenses – MCA is the right solution. In such a time where banks and traditional loan options, such as business lines of credit are not facilitating small businesses, MCAs have played a significant role to get them off the ground with flexible funding solutions. Initially, business owners kept on trying to get a bank loan one way or another. With substitutes available in the form of alternative lending options, organizations have smarten up to let go of bank loans and prefer merchant cash advance at the time of need.

What is MCA?

When compared to traditional small business loan, a merchant cash advance is very much different. There are many disadvantages associated with small business loans including lower approval rate, little to no flexibility in terms of repayment, interest amount, fixed monthly payments, and more. This is not the case with a cash advance. When we talk about an MCA, the above-mentioned issues are eliminated. Apart from this, the application approval and funds transfer are also fairly quick so that business can get back to business at the earliest.

Read More: The Best Unsecured Business Loans of 2018

How does it work?

The process is simple yet effective when it comes to obtaining finance for your business. A merchant cash advance lender provides a large lump sum amount of cash to a business and purchases a percentage of your future credit or debit card receipts. This is the primary reason why an MCA is not considered as a loan. Whether you are accepting Amex, Discover, Diner, MasterCard, or Visa cards, the lenders will evaluate and purchase future credit sales before providing an upfront amount.

Furthermore, MCAs mean business owners do not have to worry about making monthly payments to the lender to pay off the debt. Depending on the agreement you signed with the provider, a certain percentage amount will be deducted from the credit card sales made on a daily, weekly, or monthly basis.

What are the qualifications?

One of the best things about this merchant financing is that the eligibility criteria to qualify for an MCA is easier. The requirements are fairly easy than other financing option. The only main requirement for a business to meet is managing a certain amount of credit card receipts on a monthly average. This is because it is the only form of repayment – thus, lenders want assurance whether the business could repay the amount or not. For a business owner, it is important to remember that the full amount should be paid off within one to two years.

What can you do with the money?

Such merchant financing will help you get through any financial crunch you experience. However, this is not it! Whether you are looking to purchase new equipment, expand and grow your business, make payments, or for any other purpose – MCA is the right solution for your business. Apart from this, it is entirely up to you to use finances the way you want!


In a nutshell, this type of merchant financing, MCA, has gained immense popularity over the years among small businesses. If we closely look how MCAs have become a better option than other substitutes available in the market, here is why:

•    When it comes to terms of repayment of the amount borrowed, it is up to you to decide. Typically, it also depends on the MCA lender you choose – but, there is an option to either continue paying off small chunks in a short period of time or larger amount over a greater period of time. A merchant cash advance lender is linked with the business’ merchant processor so that it can automatically deduct payments in a timely manner. There are lesser chances of a business to default in case of this merchant financing.

•    Another advantage of MCA is that you are not restricted to spend the money on a specific thing. You can use the obtained financing any way you want to. For instance, if you want to pay off older debts, purchase equipment, manage payroll, expand the business, or to serve any other business purpose, you can do it with ease.

MCA’s have helped business owners across the country achieve their business goals in an efficient way due to its speedy process, and reasonable repayment terms. Consider seeking a merchant cash advance today!

Published inPBC Blog


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