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    Are you a small business owner looking for some extra cash to help grow your company? If so, you may be considering a merchant cash advance loan. But before you sign on the dotted line, it’s essential to understand what these business financing products are and how they work. Here are the basics you need to know.

    What is an MCA loan?

    Merchant financing is a type of business funding available to companies that use credit card processing systems. A merchant cash advance is a type of financing based on your company’s future debit and credit card sales. Unlike a traditional business loan, you don’t have any interest rates or terms. Instead, the lender buys a percentage of your future credit card sales for a discount.

    How does an MCA work?

    The MCA involves selling a percentage of future debit and credit card sales for cash today. The MCA lender essentially purchases an amount of your future sales at a discount. The agreed-upon factor rate determines the profit margin the mca lender receives. 

    What is a merchant cash advance factor rate?

    Your merchant cash advance provider will determine a factor rate for you, typically ranging from 1.1-1.5, based on their risk assessment and the type of business you have, ensuring appropriate repayment amounts that will have the minimal intended impact on cash flow.

    What is a merchant cash advance lender?

    Merchant cash advance lenders are different from traditional banks because they do not give loans. They advance business owners cash today for a portion of their future sales at a discount. 

    How is a merchant cash advance repaid?

    A merchant cash advance is repaid through your daily debit and credit card sales. The MCA lender will take a percentage of these sales based on the agreed-upon Holdback Rate. The MCA lender will do their best to ensure the holdback rate they assign a business doesn’t restrict cash flow to the point where it will hinder business operations. 

    Do you have to pay back a merchant cash advance?

    Though there may be many different types of loans available to small businesses, most have one thing in common – you must pay back the loan. 

    What happens when you default on a merchant cash advance?

    If you default on a merchant cash advance, it might constitute a breach of contract, and they will likely file a lawsuit against you. In addition, the MCA company will likely include a confession of judgment clause in their agreement which allows them to take legal action against the personal assets of those who have breached these terms. If you’re having trouble repaying your cash advance, it’s possible to modify the repayment plan if it includes a reconciliation clause. 

    Is a merchant cash advance a loan?

    MCA’s don’t qualify as “loans.” They’re sales of future revenue for capital today, which technically makes them different from any other kind of small business loan.

    What does a merchant cash advance cover?

    A merchant cash advance is a great way to get funds for your company. You can use it for anything, from working capital or improvements like renovations, or to beef up technology & staffing.

    Do merchant cash advances report to credit?

    There’s no reporting your MCA payment history, so it won’t help build up or strengthen a credit profile in any way. However, if you do not repay the MCA, a lender may sue you, and the judgment will show up on your credit report.

    Why is merchant cash advance good?

    Merchant cash advances offer small businesses and entrepreneurs an excellent way to get the money they need as soon as possible. If you’re looking into making improvements or purchasing new equipment, an MCA can help! Not everyone gets a loan from banks, so this type of financing is a great alternative.

    Are merchant cash advances predatory?

    The idea that merchant cash advances are predatory is entirely wrong. In reality, they offer many advantages over traditional lending options. For example, their simplified application process and flexible approval criteria mean more customers can get capital quickly without spending hours filling out forms or going through months of hassle with banks.

    What is an ISO in merchant cash advance?

    The ISO (Independent Service Organization) connects businesses with lenders who fund them. They act as an intermediary, facilitating paperwork, screening both sides for fraud protection, and ensuring that the business gets the money they need with the best terms. 

    Is merchant cash advance a grant?

    No. A merchant cash advance is a financing option that must be paid back to the MCA provider, unlike a grant that does not require repayment. 

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    Written by

    United Capital Source

    United Capital Source has been helping small business owners find the working capital they need to grow their businesses since 2011. Your business is our only business!

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