How does a merchant cash advance work?
The process of applying for a merchant cash advance loan and receiving the funds is fairly easy:
- Determine your eligibility
The requirements vary between lenders, but as a guide you’ll need to have been operating for at least six months and be making around $5,000 in regular monthly sales to be eligible to apply.
For some lenders this can be done online, and with little details required, is a quick process.
- Receive approval and your funds
The money can be funded on the same day of approval.
- Make repayments based on agreed terms
The lender will take the agreed percentage from each sale.
What to consider before you apply
- It’s short-term solution
A merchant cash advance is a short-term loan. If you are thinking longer-term, you should consider a different loan product.
A merchant cash advance can be expensive, especially compared to a traditional business loan, although it can be cheaper than a credit card. Consider what you’re using the funds for, if you really need the money and whether it’s worth the cost, and only borrow what you really need. You also need to know exactly how you will manage repayments.
Merchant Cash Advance FAQ
What is the interest rate?
Because a merchant cash advance is an advance against a business asset, rather than a loan, there is no interest charged. The cost of the advance is a set fee that will be disclosed upfront. This fee is also based on other elements, such as risk factors.
Is my startup business eligible for a merchant cash advance?
Many lenders will not provide this type of financing to a business that has been operating for less than 6 months. Also, it will depend on the type of startup you are operating, as a cash advance loan is designed for retailers receiving a high proportion of their payments via credit card or EFTPOS.
How much can I borrow as an advance?
You can borrow anywhere from $5000 up to around $500,000.
What is the duration of a cash advance loan?
Usually, the loan will operate for a short period of up to 12 months.
Still not sure if a merchant cash advance is right for you? Compare other types of loans to learn more.