Merchant cash advances are a relatively new form of alternative funding for small businesses.
Your business has to process credit card payments to be able to qualify for merchant cash advances because it’s a form of loan that works based on card machine technology.
It’s a form of funding that can help businesses over spectacular sudden crises, like the breakdown of vital technology, or those who need funds to grow but have very few assets or a credit history that’s unlikely to see them get a smile out of traditional banks.
It works like this. The lender lends the business a sum of money, with the maximum amount determined by the recent profitability of the business.
The business then pays the lender back with a percentage of its customers’ card payments.
It’s worth keeping in mind that this kind of financing, available as it is to those with a less than impeccable credit history, and those who need cash with few questions asked in a hurry, is not and cannot be a cheap option.
In fact, it can prove to be legendarily expensive. While calling them a ‘business payday loan’ would be excessive, it’s worth keeping in mind that some merchant cash advance companies have minimum interest rates of 18%, so if you take out an MCA, you’re going to need to do a very high volume of credit card business to service the loan.
There are also usually some fairly stringent limitations on which businesses can apply for them.
While the likes of Fundbox and Paypal Working Capital require only that your business has been up and running for 3 months (3 months of using Paypal for the Paypal option), the more usual minimum time in business is 6 months, with the likes of Kabbage requiring a full year in business before you can use its services.
Assuming you’ve been in business long enough to qualify, there are additional restrictions on your minimum annual revenue before most merchant cash advance lenders will consider you as a viable borrower.
Square Capital requires an annual revenue of at least $10,000 of sales on Square, and similarly, Paypal Working Capital requires an annual revenue of at least $15,000 via Paypal before the option of a merchant cash advance becomes accessible.
The numbers get higher from there. Kabbage, Lendio, and Fundbox all require you to be making an annual revenue of $50,000 before they will lend to you.
To get a merchant credit advance from National Business Capital, you need an annual revenue of at least $120,000 – though in fairness to National Business Capital, if you can get a merchant credit advance with that company, it is one of those with a much higher limit to the amount you can borrow.
In NBC’s case, that can be anything up to $2 million, which far outstrips most lenders in the marketplace.
And as a final market, if you want a merchant cash advance from CanCapital, you’re looking at pulling in an annual revenue of $150,000 before the company will consider you.
That said, and with the ever-present warning of ‘Buyer beware’ ringing in our ears, it’s worth understanding which of the leading players is best for your particular needs.
Overall, if you have a reasonable history of business and don't have a particularly catastrophic credit history, it might be worth checking out Lendio as a first option.
Why? Because it’s not a single lender with a single set of criteria.
It’s a price comparison lending broker, so it will take your situation and your needs into consideration and try to pair you up with the most economically efficient merchant credit advance lender that meets your needs.
If on the other hand, you do have a particularly catastrophic credit history, you might want to make Fundbox your first point of call.
Yes, all merchant credit advance companies are likely to be more flexible on impeccable credit history than, say, most business banks, but Fundbox has set its sights specifically on what might be called the subprime credit sector, requiring only a 500 credit score to secure an MCA.
NB – Fundbox is not technically an MCA provider; it gives you a line of credit rather than a flat sum, but if your credit history is positively toxic, Fundbox is definitely worth considering.
We’ve already mentioned the truly colossal maximum borrowing you can get with National Business Capital, and the correspondingly high entrance criteria it places on its lenders.
If you can meet those criteria, and you have the kind of high-revenue business that makes it worth your while, that’s a reason to choose NBC – if you can support the loan, you can borrow the big bucks with National Business Capital.
When it comes to this kind of loan volume though, you might be just as well advised to try a more traditional funding source, because as we’ve mentioned, an MCA usually comes with a high APR, so it can be thought of as a funding source of last-but-one resource, and if you have the cash to support a loan of $2 million, you can probably find a more traditional lender to cut you a slightly less stressful deal.
If you’re looking at getting an MCA that keeps on giving because you keep going back to it, you may well find CanCapital suits your needs more than many other lenders on the market.
In fact, CanCapital makes it almost frighteningly easy to re-up on your MCA – when you’re close to paying it off, the company will get an advisor to call to discuss your future funding and any ways in which CanCapital can help facilitate your next big project.
Need a new marketing campaign? Why not MCA it?
While once you’re met their initial lending criteria, none of the leading MCA lenders make it exactly difficult to maintain and extend your advance agreements with them, CanCapital has honed its renewal game to a fine point, so you’re rarely stuck wondering whether or not you can continue with the company. With CanCapital, you probably… erm… can.
One of the big advantages of taking a merchant cash advance of course is that it’s supposed to be quick and convenient – certainly by comparison with traditional lenders like banks.
If the speed and the convenience are extra important to you – say you have a walk-in freezer on the fritz and all your tomahawk steaks are getting dangerously warm and potentially bacterial, it’s worth checking out Kabbage.
Like Fundbox, Kabbage is not so much a fully-functioning MCA as it is a line of credit, but in terms of ease and convenience, but with a simple automated application process and a quick turnaround time on decisions, it’s up there with the best in terms of rapidity of access to cash.
Needless to say, if you’re using Square or Papal card readers, or even the newer kid on the block, Stripe, it would be odd if their own corporate options weren’t the best and most suited to your MCA needs.
Naturally, keeping your MCA lender close to the kind of card reader you’re using, when the whole premise of the cash advance is that it requires you to repay the advance through a percentage of card traffic should be a no-brainer.
If you’re using a Paypal reader, and the Paypal Working Capital MCA is not your best bet… something’s going wrong in the system, somewhere.
Whichever merchant credit advance lender you go with, be aware of the certainty that they will apply some restrictions to a) whether you can get an advance from them at all, depending on your time in business and annual revenue, b) the amount you can borrow, depending on your recent degree of card transaction traffic, and c) the APR they charge you for the advance.
Not all MCA lenders are created equal – in fact, each of the leading players in this market has tended to lean towards specializing in a particular type of MCA, and a particular type of borrower.
NBC has opened up to large borrowers, for instance, and CanCapital to regular, more frequent borrowers.
Make sure you choose the MCA lender that most precisely meets not only your circumstances but also your needs. Getting the choice of lender wrong can leave you with a merchant credit advance that doesn’t do the things you need it to do, or that puts you and your business under unnecessary stress.
Find the right one though, and merchant credit advances can be a lifeline to businesses who would either be rejected by more traditional lenders, or don’t have the time to wait around on their ponderous decision-making processes.