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A business cash advance, often referred to as a Merchant Cash Advance (MCA), is a lump sum of capital lent against a business's future sales.
Unlike traditional business loans that require monthly fixed payments, a business cash advance is repaid through a percentage of your daily credit card sales or through daily or weekly bank transfers, known as Automated Clearing House (ACH) withdrawals.
The application process is generally simple, usually requiring basic financial documents like bank statements and proof of monthly revenue.
Once approved, the business receives the lump sum amount, usually within a few days.
Repayment begins almost immediately. A predetermined percentage of your daily or weekly sales is held back (known as the "holdback") and used to repay the advance.
The repayment period typically varies from three to 18 months but can go up to 24 months for some lenders.
Benefits
The application and approval process for a business cash advance are often faster than traditional loans, which means quick access to capital.
Unlike other funding options, a business cash advance is unsecured, meaning you don't have to put up assets as collateral.
Since repayments are based on a percentage of your daily sales, you pay back less on slow business days and more when business is booming.
Business cash advances are generally more accessible for businesses with less-than-perfect credit.
The ease and speed come at a cost—merchant cash advances often have higher fees than traditional loans.
Your cash flow can be severely impacted by the daily repayments, especially during slow periods.
Most providers restrict how the advance can be used, often limiting its utility for operational expenses and short-term needs.
A business cash advance can be a highly effective tool for generating ROI if used wisely. Here are some ways to achieve that:
Use the advance to buy inventory in bulk at discounted prices.
Prepare for your peak season by hiring temporary staff.
Boost sales through targeted marketing campaigns.
Modernize your operations to attract more customers.
Smooth out cash flow by covering short-term operational costs.
Financial technology companies are disrupting traditional lending by offering quicker and more accessible business cash advances.
Ongoing discussions at the legislative level may influence costs and accessibility.
Lenders are increasingly using AI to assess credit risk, making the process faster and more accurate.
Some lenders are offering e-commerce-specific cash advances that tie directly to your online sales.
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