What is a merchant cash advance?

At OnDeck, we understand that accessing capital can sometimes feel like a daunting undertaking for business owners.

That’s why, every Wednesday, our blog will contain “Humpday Help” to provide you with important and useful information about the different types of financing available to small businesses.

In today’s blog post, we’ll explore merchant cash advances. You can also visit our separate Merchant Cash Advance comparison page here.

  • What is a merchant cash advance? A merchant cash advance (MCA) is a lump sum of money lent against a business’s future credit card sales. This is not a “true” business loan, but rather an advance based on your future sales.
  • How long does it take to apply? It depends on your provider, but normally around one week.
  • What does repayment look like? Typically, it’s a fixed percentage of your daily or weekly credit card sales. The daily payment varies with your batch size. Payment is collected directly through your credit card processor.
  • How much does it cost? It depends on your business profile and estimated term length, but normally you will pay $1.20 – $1.50 for every $1 you borrow.
  • Will it build my business credit? No – MCA companies aren’t required to report back to the credit bureaus. OnDeck, which offers true business loans, does report repayment to the credit agencies.
  • Will I need to change my credit card processor? Maybe – it depends on your provider. Always ask before you decide to take an MCA.
  • How do I tell the difference between merchant cash advances and true business loans?MCA providers – such as Merchant Cash and Capital, Capital Access Network (AdvanceMe), and Rapid Advance – will focus largely on your credit card sales. They will also discuss your processor and will use the term “holdback percentage” (what is held back each day from daily credit card batches). You may also be told that you will have to switch your credit card processor.A true business loan, such as those offered by OnDeck, will focus on the overall health of your business rather than just your credit card sales. Companies like ours also report repayment back to the credit agencies to build your business credit.

If you have any additional questions, please leave a comment below for us. Be sure to check back next week when we explore business lines of credit.

OnDeck is a Google Ventures-backed company with an A+ Rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries.