A merchant cash advance can be a great financing alternative



If your business ever needs an infusion of cash but you don’t want to hassle with traditional lending or aren’t able to qualify, a merchant cash advance might be the answer. A merchant cash advance gives merchants that accept credit cards sales an advance on those sales with the understanding that it will be paid back based on an agreed upon percentage of processed card sales. Let’s take a closer look at how a merchant cash advance works, the pros and cons, and how you can obtain one.

How does a merchant cash advance work?

A merchant enters into an agreement with a merchant cash advance provider, generally their payment processor, that outlines the amount to be advanced and how it will be paid back. The details of the advance work like this:

  • The merchant receives what is called a factor rate that is applied to the amount borrowed. This represents the cost of the advance and is generally provided as a factor, in today’s market ranging from 1.15-1.4.
  • The merchant is also given a holdback percentage, with is the percent of processed credit card sales that will be deducted from their daily batches in order to pay back the advance. Holdback rates vary but at this time are generally 10-20%.

Here’s an example of how it works:

  • A merchant has a factor rate of 1.25 and a holdback percentage of 12%.
  • If the merchant borrows $10,000, they will need to pay back $12,500 ($10,000 x 1.25).
  • The payback will be based on daily credit card sales. So if one day’s sales are $1,000, the payback that day would be $ 120 (12% of $1,000). If another day’s sales are $500, the payback that day would be $60.
  • The payback continues until the entire advance is paid back, unlike a fixed term in a traditional loan.
  • Another difference from a traditional loan is that the amount to be paid back is based on a percent of sales, not a fixed monthly payment. So, if a merchant has a bad month of sales, they aren’t burdened with a loan payment they can’t afford. And if they have a few good months of sales, they can pay back their advance quicker.

What are the pros and cons of a merchant cash advance?


  • Easy qualification
  • Quick approval and funding, often in just a few days
  • A personal guaranty isn’t required
  • No need to secure the advance with business or personal assets
  • Flexible in terms of how the funds can be used
  • Payback based on a percentage of sales, not a fixed monthly amount
  • Available for businesses with a poor credit rating


  • Payment history generally isn’t reported to the credit bureau, so it won’t help build business credit
  • The rates are higher than a typical business loan

How do you apply for a merchant cash advance?

Most quality payment processors are able to provide details and help small businesses access a merchant cash advance. If you already work with a particular processor, it’s fairly easy to get started since they already know your credit card sales history and have your business information. The application process is usually quick and approval and funding is generally provided within just a few days.

A merchant cash advance is a great way for a small business to alleviate short term financing needs. It offers a number of advantages over traditional financing, including ease, flexibility and availability, regardless of credit. Merchant cash advances are more expensive than a traditional loan, though, so be sure your payment processor explains all the terms, conditions, and costs involved.



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