Cash flow financing is a complex area for small businesses to delve into because much of it is built around particular business models targeted by niche lenders. Luckily, there are a few staples that are easy to navigate, with fast application processes and simple terms. The merchant cash advance is one of them, providing short-term financing when you need working capital, if you do a lot of business through credit cards.

MCA Basics

An advance against your merchant account isn’t a loan, it is an advance. That means instead of making payments that are relatively predictable over a term, you’re agreeing to pay a portion of the total credit card receipts your business generates until the advance and any associated fees are covered. The percentage of your receipts you turn over and the cost of capital are both determined by the size of the advance you need relative to your income. Like other forms of financing, merchant cash advance deals cost more if the lender perceives a high risk associated with the transaction.

How It Works

When you need working capital ahead of an anticipated busy period, an MCA provides you with a lump sum of cash to use as you see fit. The payments are tied to your income, so while you are working on preparing for the busy period, they are relatively small. When your sales go up, the payments scale. As a result, the right timing can lead to a fast payoff and minimal financing charges.

So when does that work out? Many successful retailers use the merchant cash advance to load up on inventory just before an anticipated busy season. Booksellers use them to stock up on anticipated bestsellers by popular authors. Package liquor stores frequently turn to them to load up on soda, adult beverages, and snacks before holidays. Even clothing retailers often turn to them to stock up on seasonal fashions, allowing them to refresh inventory a couple times a year without cramping the business’s cash flow.

Who Qualifies for an MCA?

Businesses in any industry that do a significant portion of their sales through credit cards and other electronic transactions that use the business’s merchant account can use MCAs. They work just as well for online businesses and offline ones. In addition to that, requirements include income disclosures for total income and a credit report. Applications tend to process within three to five days, and most lenders distribute money within a week of application.