4 Steps for Applying for Merchant Cash Advance

To supplement cash flow or to fund growth, businesses with a high volume of credit card transactions often turn to unique funding opportunities like a merchant cash advance.

An MCA can be defined as a discounted purchase of future credit card transactions. The cash is supplied immediately, often within three days after applying. The funder then keeps a portion of total credit card sales to repay the advance. The holdback percentage, unlike a set repayment schedule, allows the business to remit more affordable amounts during slower sales periods, so an MCA is often ideal for businesses with fluctuating sales cycles.

1. Determine Use and Cost

Any company that conducts the majority of sales in credit cards may find merchant funding a favorable method of financing. Retail, service and restaurant industries all could use an MCA to fund things like:

  • Funding location expansion
  • Stocking up inventory
  • Training new staff
  • Marketing strategies
  • One-time expenditures
  • Additional cash for payroll

Interested applicants should research and compare the costs and eligibility requirements of different merchant funding companies. Companies should also ensure they have sales solid enough to support the business with a reduced intake of credit card revenue.

2. Coordinate Funder and Credit Card Processor

Since the remittance is withheld directly from the credit card transactions, a credit card processor should have a good working relationship with the advance company. A prospective client should determine if the current processor is approved by the preferred funder and switch companies if it seems necessary. If a business would instead continue a long-standing affiliation with a specific credit card processor, the processor may be able to recommend a favored merchant funding company.

3. Meet Eligibility Requirements

Since credit card transactions are the basis for a merchant cash advance, a company should have at least $5,000 in regular monthly credit card sales. Most funders also prefer companies that have been operating for a minimum of six months. Credit history is not generally a factor; however, an open or dismissed bankruptcy within the last year could disqualify a company.

4. Apply and Review Contract

Along with the application for funding, a business will typically need to provide documentation such as:

  • Proof of business ownership
  • Financial history
  • Credit card sales reports
  • Total annual revenue
  • Projected sales outlook

Upon approval, it is usually prudent to review the contract before signing and make sure the details are within expectations.

Companies on the verge of significant expansion or temporary sales downturn might leverage future sales to great advantage. If your business model and projections are in this line, you may find a merchant cash advance precisely what you need to meet your industry’s demands.

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