Business Cash Advance Loans

What is a merchant cash advance?

A merchant cash advance is a loan you get through your payment processor. In most cases, they offer their successful customers a merchant cash advance which can then be borrowed as a lump sum to pay for business expenses (ideally those that help you grow) and then is paid back through the payments you take from your customers.

How do merchant cash advances work?

Let’s look at how merchant cash advances work through this example: if you generally make $10,000 a month through your payment processor, they may offer you an advance of $20,000. You decide you can afford to pay it back quickly, so you choose to pay it back via 20% of all the payments you receive.

For the next few months, 20% of all the payments you receive will go to repaying the $20,000. In most cases, merchant cash advances have a fixed fee for borrowing the money, though you may find one that charges interest on the amount you’ve yet to pay back. They also usually have a minimum repayment, either monthly or every 90 days, so if for any reason you don’t make any money through them, you simply need to pay at least that minimum to maintain the loan.

What can you use a merchant cash advance for?

You can use a merchant cash advance for any business purpose – it acts a lot like a term loan, so there are no rules about how you use the cash. That said, the most popular ways to use a merchant cash advance are:

• To boost your working capital
• To invest in new equipment or software
• Help smooth cash flow (which can be turbulent for product-based businesses)
• Invest in new inventory
• Invest in a new asset (such as an online store or another location)
• Pay off debts elsewhere to avoid interest
• Pay for an expensive service to grow your business or repair something on your premises

Compare merchant cash advance lenders

Kabbage

✔ Funding: Borrow $1,500 - $150,000
✔ Minimum Credit Score: 640
✔ Loan term: 6, 12 or 18 months
✔ Funding turnaround: As soon as 1-3 business days

Kabbage offers borrowers a credit line up to $150,000 with monthly repayment options and no prepayment penalties. Approval as fast as same business day.

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Fundbox

✔ Funding: Borrow $2,500 - $150,000
✔ Minimum Credit Score: 600
✔ Loan term: 12-24 months
✔ Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

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What are the pros and cons of merchant cash advances?

PROS

• Most of the time, your payment processor doesn’t care about a credit check because they’re well aware of your trading history so there will be no credit check
• You’re often pre-approved, so you won’t be able to apply for more than they’re willing to lend you
• You can set the percentage you pay back, so you don’t need to worry about finding the loan unaffordable (provided you’ve done your math and know your business will continue to be successful)
• Minimum payments are generally very low, so if something unusual happens, you’ll be able to cover the minimum with no trouble
• You don’t often have a set date you must pay it back by
• You can often pay them off within months of borrowing, and then borrow again when you need to – for businesses doing a lot of transactions, they essentially pay themselves off
• You usually get funded within 24 hours of applying
• You don’t need to put up anything as collateral
• If you make less one month, you will pay less that month

CONS

• You can be tempted to borrow money when you don’t really need it
• Your borrowing ability is limited by how much you make through that payment processor, so if your income streams are diverse you may not be able to borrow as much as you need
• They can be an expensive way to borrow – though some lenders are better than others
• If your business takes a downturn, you may not be able to utilize all the money you’re making because a percentage of every sale will still be going to pay back the loan