Choose the Best Merchant Cash Advance


The best merchant cash advance (MCA) service is dependent on a number of factors. The MCA vendor, terms, fees and business needs of the individual business owner are all relevant factors. A brief review of the important considerations will help a business owner decide when and where to get a cash advance:

The Best Merchant Cash Advance Vendor:

First, decide the best cash advance company may be none. Some business owners who need quick cash have no access to bank loans, factoring, or lines of credit. The smallest businesses might not have enough revenue, often a minimum of $100,000 a year.

Assuming a cash advance is a necessity, the smart business owner will look at several vendors. Any MCA vendor should have a track record. The best vendor will have some knowledge of the business owner’s industry. Business processes, supply chains, and billing practices may vary in ways that make it difficult to structure a cash advance.

Terms and Costs:

The terms and costs of a cash advance will vary quite a bit. Get the details up front, before taking the first ‘reasonable’ cash advance offer. The main terms to pay attention to include:

  • Percent of each transaction taken by the MCA vendor – typically 10% to 20%
  • Premium – A cash advance is not a loan, so there is a premium or service fee of up to 25% of the total amount of the advance. A $20,000 advance may cost $25,000.
  • Administrative fees, if any – There might be an application fee or “closing fee” charged by the broker.  Ask for details up front.

The best merchant cash advance business then is one with reasonable fees, a track record in the business and some experience in the relevant industry.

Managing the Risks:

Aside from getting an advance from a disreputable company or paying huge and unexpected fees, the premiums can make a cash advance a bit expensive. In the above example, the $5000 premium on $20,000 could amount to an interest rate of 100%. An unsecured loan with the same 12-month term might only cost $3000 in interest and fees.

While the preceding point is worth considering it tends to overplay the comparison between cash advances and loans. Most business owners who could get a $20,000 loan would do so. The only reason for turning to a cash advance would be the need to get money as soon as possible. Most business owners who need a cash advance do need money right away and lack access to conventional lending, usually because of poor credit or an insufficient track record.

Merchant cash advances can be useful in emergencies or to exploit some opportunities.

Use Cash Advances as a Business Strategy not a Funding Source:

Ask intelligent questions to manage the business risks of a cash advance and do some comparison shopping to get good terms. The best merchant cash advance business will ultimately be the one with relevant experience, a good reputation, and the best terms.

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