Not All Businesses Qualify for a Merchant Cash Advance

Steve O'ConnorCapital Advance, Funding Options, Merchant Cash Advance, Small Business FinancingLeave a Comment

While your chances of obtaining a merchant advance are far greater than securing a small business loan, there still is the possibility of rejection. A merchant cash advance isn’t for every business. Here’s some advice you can follow to help make sure your small business qualifies.

Over the last year or so, we have been discussing financing arrangements that are available to small business owners: from traditional bank loans to credit cards and lines of credit, even crowdsourcing. While these are great options for asset-based financing, or raising money for a new concept, a merchant capital advance provides quick funding with no collateral. It’s a small business financing alternative that more and more small business owners and restaurant owners are exploring.

Why Consider a Merchant Capital Advance?

For many businesses, the merchant cash advance is the right choice, for the following reasons:

  • Perfect credit and collateral are typically not required to secure a merchant cash advance
  • Business plans are not required
  • Approvals typically only take a few days, getting you the cash you need quickly

Getting Qualified

While there’s no silver-bullet answer, we can boil down the qualification to a few pieces of no-nonsense advice:

  • Your business should be in operation for at least one year. Your business needs to meet a minimum threshold regarding average monthly card sales. A new business with a small customer base would have a hard time hitting these sales targets. Also, most merchant cash advance providers require at least one year’s worth of credit card processing statements in order to qualify your business.
  • Your business must accept credit card payments. Merchant capital advances are essentially an advance on your future credit and debit card sales. The card processing is needed both to qualify for and to repay the advance. Repaying the advance is simple and automated by collecting a small percentage of processed card sales on each sales transaction.
  • Your business is overleveraged or on the brink of bankruptcy. The merchant advance qualification may not look at as many factors as a bank loan qualification, but future earning potential – and repayment potential – are key. If there is a high risk to the provider regarding repayment, then it’s unlikely your business will qualify for a merchant cash advance.
  • Consider your industry. Not all industries are suited to a merchant advance due to how they make money. If you make your earnings on high volume rather than on high margins—such as discount providers, grocery store owners, or those in highly competitive markets—then this may not be the product for you. While things may be fine if volumes are high, if volumes slip, a merchant advance could swallow your cash flow, and leave you short on funds needed to cover critical operational expenses.
  • You do not understand how a merchant advance works. A merchant advance can complement or replace traditional financing, but it’s not for every situation. If you don’t understand how a merchant advance works or in which business situations it would best apply, you may be putting your business at risk. While a merchant cash advance provider should take the time to understand your business and your needs, they cannot know all the details of your situation. Part of the onus is on you, the business owner, to make sure that you understand the product and the effect it will have on your cash flow.

If you feel your business is already followed these guidelines, and you’re looking to invest in a project with a measurable ROI, then it may be time to prequalify your business for a merchant capital advance.

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