How to Use & Reap Benefits from Merchant Cash Advance as a Startup

June 14, 2022
It’s tough to get funding as a startup company from a traditional bank because you have to undergo a lengthy application process. The better alternative for any promising startup would be a merchant cash advance loan or MCA. This article explains how Merchant Cash Advance could turn a new company more sustainable in the long run.
Merchant Cash Loan

To what extent Merchant Cash Advance Loans assist startups?

Merchant cash advance or MCA is a financing process where private lenders lend money to businesses as emergency funding. Business owners borrow money from MCA as it’s one of the fastest means of gaining access to working capital.

  • MCA is a financing process that mostly funds startups enabling business owners to run their businesses smoothly, despite a lack of capital.
  • The loan repayment amount depends on the factor rate instead of interest; therefore, acquiring loans from any traditional bank is more feasible, however, tougher.

This is one of the reasons why MCA is the best option for sustainable startup companies showing a promising growth rate.

How does Merchant Cash Advance for startups generally apply?

A merchant cash advance, or MCA, allows a business to borrow money from lenders based on their Factor rate. A Merchant Cash Advance is an alternative loan often ranging between $4,000 to $200,000, depending on the size of the business. It's quite a good deal for a startup company.

  • MCA doesn’t need too much information to lend money, needing little information on your startup business.
  • When you receive a Merchant Cash Advance, you need to repay it, ideally in monthly, weekly, or bi-weekly installments over months or even up to two years.
  • Unlike other business loans, a merchant cash advance rarely requires collateral, which means you can get money in as early as 24 hours to 7 days.

How can a Startup apply for Merchant Cash Advance?

For startups, applying for MCA is easy; however, bank loans are a lengthy process. To apply for an MCA as a startup, you don’t require many documents or involve lot of paperwork. You have to simply submit some papers proving your business ownership along with your credit card and bank statements, and proof of citizenship.

That would be enough. If your lender has any specific requirements, they will ask for them.

To avail of a Merchant Cash Advance, you’re expected to fill up a cash advance application.

After assessing your application, bank, and credit card statements, the lenders will fix the factor rate before lending you the money.

The factor rate varies from 1.1 to 1.5. Try to settle for the lowest rate as it will make your repayment much easier.

It is recommended that you contact a third party to manage the lenders according to your needs.

Cash Advance appliciation

How to leverage Merchant Cash Advance for startups?

If you want to make the perfect use of MCA for funding your startup, then you have to know how to use MCA loans wisely.

Upon receiving the cash from an MCA lender, please try to sort out your emergencies first. Emergencies can be anything such as repaying bank loans, buying assets for your business, paying your employees' salaries, investing cash in your startup, etc.

Startups often require cash to run properly. Use MCA as an investment in your business to earn money and repay the money to the lenders. Use MCA perfectly by using it as a safety net against your business costs and investments.

How to reap benefits by using MCA for startups

Used correctly, you can definitely enjoy substantial ROI from MCA. Remember when you settle for lower Factor Rates, your repayment amount will be lower. This will help with the growth of your Company.

You can acquire money from MCA at a fixed rate to back up your business during emergencies. With the MCA loan, you can settle all your emergencies.

Negotiate the factor rate with your lender for meeting your needs and use it properly. With the proper use of MCA, you could enjoy a profitable ROI.

MCA pros & cons

Pros of using Merchant Cash Advance as a startup

Easy to Apply

You can easily apply for MCA. all you need is Business & Citizenship Proof, a Bank Statement, and a Credit Card Statement of 6 months. With these documents, you can easily apply for MCA by filling in the cash advance form.

Flexible Payment System

Merchant Cash Advance includes payments that are proportional to the amount of business you bring in each month, unlike any traditional bank loan with scheduled payments. This is particularly beneficial for startups because payments are reduced during slower months whenever credit card income is also lower.

Minimum Credit Rating

One of the primary reasons owners seek merchant cash advances in the first place is that they are unable to acquire traditional loans, involving a credit check. Small business owners or startup business owners who cannot obtain finance from banks, whether due to poor credit or a lack of credit history, typically turns out to merchant cash advance companies as an alternative.

The majority of lenders do not need perfect credit. To qualify for MCA, you will almost certainly need a minimum credit score, usually ranging between 500 and 600.

Many MCAs demand a business credit score as one of the passing requirements. Suppose your company does not have a business credit card, in that case, the lender will consider any existing loans if your company has previously requested funds.

No Collaterals Needed

A merchant cash advance may be a great support for your recent venture; hence, if you are concerned about personal liability then you shouldn't be concerned at all. Unlike other funding options, your business’s assets are not affected by missing funds. You will get an extension to pay the charges of MCA, is because unlike traditional financing MCAs do not demand collateral.

Cons of Merchant Cash Advance for Startups

More Expensive than Traditional Loans

MCA loan leads are more expensive than other banking loan leads. While Bank loan rates normally range between 6.25 percent to 12 percent, Merchant Cash Advance fees can range from 5% to 20%. The Annual Percentage Rate(APR) on MCA charges could be up to 200 percent, often quite expensive for a startup business.


Unlike strictly regulated banks, Merchant cash advance companies are not bound by legal restrictions; therefore, some MCA contracts charge very high factor rates often enforcing severe repayment terms. Lenders sometimes take advantage of potentially needy business owners.

Limited Business Operations

Most times Merchant Cash Advance providers will easily provide you with a loan, but then push you to pay in cash. Most lenders place constraints on how you conduct business regarding credit card payments. Some lenders discourage credit card payments and encourage cash. This could pose a threat to your business.

Temporary Solution

MCA is not a long-term solution for businesses, often lasting between 3 to 15 months. You should consider only if it can solve your emergency financial constraint, and if you are convinced that you will be able to repay the credit loan. Using a cash advance elsewhere could be dangerous, and sometimes, difficult to pay.

Is Merchant Cash Advance the right choice for YOUR startup?

The merchant cash advance is a quick and easy solution to meet your short-term fund shortage. While they may be more expensive, the speed at which the loan is sanctioned and ease of accessibility renders Merchant Cash Advance the most suitable choice for any promising startup business. 

Merchant Cash Advance programs

Before applying for an MCA, make sure to learn more about Merchant Cash Advance programs and how they work. Moving on, it’s important that you also compare and contrast the terms and conditions of multiple MCA providers in your area and see which one fits you best. Make sure you pick a trustworthy and legit MCA provider, to arrive at the best results. 

EndNote -

Merchant Cash Advance makes quick funding more accessible to businesses of all scales - particularly for Startups. The process has helped innumerable businesses sustain during dire times like the pandemic and moving on, has the potential to keep infant businesses afloat.

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