Securing traditional funding can be difficult for small businesses without a credit history. However, merchant cash advances (MCAs) are among the most accessible alternative lending solutions for owners who need to quickly improve cash flow.
MCAs are not loans. Rather, a business receives a lump-sum payment in exchange for a portion of their future sales. That’s why they are occasionally referred to as revenue-based financing. Small business owners make repayments in two ways. First, a “factor rate” is applied to the entire amount. Second, businesses must remit a fixed percentage of daily sales (aka a “holdback amount”) until the advance is fully repaid.
MCAs are especially flexible in that repayment terms fluctuate based on sales. As a result, small businesses who take on MCAs should never see more money going out than coming in.