Merchant Cash Advances - What and How

Henry Githinji

Henry Githinji

Henry plans to be an entrepreneur with his own financial consultancy firm, specializing in in binary options and stock trading. Henry is a day trader and plans to use the capital he makes to launch his business. He plans to build a portfolio that attracts investors through his trading performance.
Henry Githinji

Repayment of Merchant Cash Advances



A Merchant cash advance (MCAs) is very quick to apply for. It takes anywhere from mere hours to just a few days to get approval. Less paperwork is needed and there are very high chances of qualifying for them. Once the merchant cash advance is approved, funds are dispatched within two days. Many people prefer MCAs because of their fast approval. The following are the simple steps to take for MCAs application:

1. Applying for cash

In an MCA application, you will be asked for your business tax ID, social security number and other important details about your business.

2. Provide documentation for your business

Your company’s bank statements as well as credit card sales for the past several months are required. You also need to produce a copy of the lease of the company’s office.

3. Get approved for funding

MCAs take a very short time to be approved, much shorter than those of traditional bank loans. It usually takes 24 hours for your business to get approval for a merchant cash advance.

4. Set up credit card processing

You may be required to switch your business credit card processor. This is necessary for the approval of MCAs.

5. Finalize details

Small businesses are approved for a certain amount. It is then required to pay an amount which might be, for example three dollars higher. The business account of the borrowing company will then be debited 15% on a daily basis till the full cash advance amount is paid back.

6. Get ready to spend your funds

The MCA is deposited into your business bank account by the MCA lender.

Repayment of merchant cash advances

merchant cash advance

repayment of merchant cash advance

Businesses which do not qualify for bank loans usually turn to MCAs. Repayment of MCAs is considered to be a nightmare sometimes. That is because MCAs have high rates. It is, however, still preferred over invoice factoring and traditional bank loans.

Three methods can be used to repay MCAs:

  • Automated Clearing House (ACH) withholding: this takes two things into account – sales and loans. For sales, the finance company deducts the portion directly from the business checking account through the ACH. For loans, the finance company debits a daily fixed amount from the daily sales of the borrowing company.
  • Split withholding: this is the most common repayment method for MCAs. Credit card sales are split between the business and the finance company at an agreed portion of the credit card processing company.

Lockbox/ trust bank account withholding: when this method of repayment is used, the business does not receive its credit card sales for a day. It is this major limitation which makes lockbox/ trust bank account withholding less preferred than other methods of repayment. All credit card sales of the business are deposited into a bank account controlled by the finance company. The agreed portion is then forwarded to the business through ACH, EFT or wire.

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