Your guide to business cash advance for small businesses

Thu | May 2022

With the world returning to normal after the Covid-19 pandemic, small businesses are finally starting to pick back up again, especially those businesses requiring everyday interactions outside of the online world. Access to cash can be a game-changer for these sorts of companies. For instance, having stock of items in a store, or being able to hire marketing personnel, can make or break your small business. And you know what can help? A merchant cash advance

This guide will show you everything you need to know about cash advances and how to get one. Let's begin.

What's a business cash advance?

Just as you might expect from the name, a business cash advance (also known as a merchant cash advance or MCA) isn't a loan. Instead, it is a real advance against a business's expected future revenue, providing advantages and drawbacks different from those you'd expect with a traditional loan. Put simply; cash is advanced to your business that gets repaid by withdrawing directly to your bank account.

A cash advance is easy for smaller businesses – especially those whose owners don't have a perfect credit history - to get a lump sum of cash quickly. The advance is then paid back by an automated withdrawal of a percentage of your daily bank balance. Learn more about how it works and the minimum qualification requirements!

How do cash advances work?

When you take out a cash advance, the financing company gives you an advance of funds in exchange for a percentage of your business's revenue over time. Payments are typically made daily or weekly as your business generates back the funds from sales. A factor rate calculates the total amount to be repaid, a multiplier generally based on a business's financial status.

This repayment comes from a portion of future sales, regardless of how much you earn in monthly sales. You agree on a percentage you're comfortable with; for example, you may choose 10%, 15%, 20%, or something else, depending on the estimate of your monthly revenue. This will also vary based upon the estimated term of the offer you receive from the funder.

Then, the funder of your payment arranges for payments to be made automatically from your company's bank account until you've paid back the advance, plus the funding fee. And that's it!

What are the benefits of a cash advance?

A business cash advance can help you access funding very fast. In most cases, it is a decision made within less than 2 hours. So, if you are in a hurry, this is the option for business owners who will not wait for a bank or credit union loan process. Additionally, the application process is easy, with minimal paperwork and no need to provide collateral.

MCAs are beneficial because they allow you to calculate how long it will take to pay the advance back based on the borrowed amount. Another component that makes a merchant cash advance a great funding option is that if your business revenue drops, you are within your rights to ask to reconcile the daily or weekly repayments to the new reality of your business.

What is an example of a cash advance?

Below, we will take a look at an example of how this type of cash advance works:

You run a bakery and need capital to work on some infrastructure renovations before the end of the summer. You fill out a 2-minute application and provide your business's bank statements. With those bank statements, a funder will underwrite your business based on the cash flow seen on the bank statements.

Let's say, for example, you average $10,000 in monthly gross revenue in your bakery. Usually, the amount funded tends to be between 80-120%. So let's assume you receive $10,000 in funding, meaning 100% of your average revenue. The term is then calculated to be four months with a payback of 7.5% per month.

That means in total (from the daily or weekly debits), you will pay back $750 in fees for the $10,000 received, which makes the total repayment amount $13,000. If your revenue stays at $10,000 per month, you’ll pay back $3,250 ($2,500 of the advance + $750 in fees) every month.

Some companies use merchant cash advances to purchase stock, business equipment, or for renovation and office repairs. Others use them to fund unexpected costs or aid their business in cash emergencies. They can have advantages over more traditional business funding methods, such as speed, easier approval, more flexible fees, and payments that respond to your level of sales.

Are you feeling ready to get a business cash advance?

If you are looking for an advance or merchant cash advance to invest in your business and boost it, we can help you! One Park Financial has fast financing options ranging from $5,000 to $500,000. We also have more than ten years of working with small businesses like yours!

Check our form to see if you get the pre-qualification in just minutes; One of our experts will guide you through the entire process.