What is a merchant cash advance used for?

A merchant cash advance is often used to cover the short-term funding needs of businesses that accept debit and credit card payments. After accepting the advance, you’ll make variable payments based on your credit and debit card sales. 

What’s the difference between a loan and a merchant cash advance?

The major difference is that a loan comes with a set repayment period. On the other hand, a merchant cash advance takes a percentage of your credit card sales until the advance is repaid. The speed of repayment varies based on your credit card sales. 

Does a merchant cash advance affect credit score?

A merchant cash advance is not reported to the credit bureaus. Without this reporting, a merchant cash advance cannot help your business credit. 

What companies offer a merchant cash advance?
Can a startup get a merchant cash advance?

A merchant cash advance for startups is possible. But whether or not a startup can obtain a cash advance varies based on their credit card sales.

If a startup has significant credit card sales, then a merchant cash advance is within reach. But if there aren’t any credit or debit card sales to point to, then a merchant cash advance is unlikely. 

Can I get a merchant cash advance with bad credit?

Yes, it’s entirely possible to get a merchant cash advance with bad credit. The decision boils down to your business’ debit and credit card sales. If your business can repay an advance, then you can get one even with bad credit. 

What is a holdback and how is it different from an interest rate?

A holdback determines how much you must pay on a daily or weekly basis. The holdback amount can be represented as a percentage. For example, you might be expected to repay the advance with 5% of your daily sales.

In contrast, an interest rate doesn’t apply to the amount of your daily payment. Instead, the interest rate indicates the cost of the advance. 

Can I get out of my merchant cash advance?

If you want to learn how to get out of a merchant cash advance, that’s a big challenge. When you sign a merchant cash advance contract, you agree to the repayment terms. After signing, it can be challenging to get out of the contract.

Consolidating your merchant cash advance into a term loan with monthly repayments and a lower interest rate could be the right move. Another option is to contact the merchant cash advance company to explain the situation. If you are struggling to meet the payments, it’s possible they’ll readjust the repayment terms. But after accepting the funds, getting out of the deal is difficult.

If you feel the terms are unfair, then consider reaching out to an attorney. In some cases, misleading advertising is grounds to sue the merchant cash advance company and get out of the deal. 

What happens if you default on a merchant cash advance?
What are some alternatives to merchant cash advances?

A few alternatives to merchant cash advances include unsecured small business loans, secured small business loans, business credit cards, commercial real estate loans, working capital loans, and more. Due to the big expense of a merchant cash advance, make sure to consider all of your funding options before moving forward. 

Final Word

If you have the necessary credit card sales, a merchant cash advance can help you get the funds you need for your business quickly. But the costs of an advance will add up quickly. Before committing to an advance, ensure that your business can support the expense. If you can wait a few days for funding, consider more affordable financing options like a small business credit card or secured business loan

About the Authors

Sarah Sharkey

Written by: Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing.

More about me
Kal Salem

Reviewed by: Kal Salem

MA Accounting - Arizona State University

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

More about me
Joe Templin

Fact checked by: Joe Templin

Charted Financial Consultant - CAP

Joe Templin is a Charted Financial Consultant (ChFC), MCEC, CEC, CLU and CAP with well over three decades consulting, coaching, and teaching. He's an author of the Amazon Kindle #1 New Release "Every Day Excellence" and host of The Human Kaizen Podcast.

More about me

Related Articles

Show More