Last Updated on August 3, 2023
A merchant cash advance (MCA) is an advance that a business can get based on its credit card sales. Once a lump sum of money has been deposited into your business checking account, the cash advance lender will get a percentage of your future credit card sales until the advance is paid off.
In this article, we will go over what the latest cash advance trends and statistics are and what they mean. Then we will give a quick overview of the providers who offer merchant cash advances in 2023. Finally, we’ll lay out alternative lending options for small businesses.
Industry Trends and Statistics
Here are some recent trends about merchant cash advances.
- The merchant cash advance market size was estimated to be $19 billion in 2021, up from only $8 billion five years ago.
- According to a study from the Federal Reserve, the merchant cash advance approval rate was 84% in 2020.
- Interest rates for merchant cash advances are steadily decreasing and are now competitive.
- More regulations mean more protection for small businesses against predatory practices.
- The application process is more streamlined and easier than the bank loan process.
- Merchant cash advances do not require you to give up equity for a cash injection.
Merchant cash advances have the highest approval rate for small business lending options, only a few percentage points away from equipment loans. Compare this to the approval rate of a regular business loan is only 57%.
Interest rates might be more competitive now for cash advances, but it still depends on several factors. It is possible to take advantage of low rates if you find the right company. Your interest rate will still depend on your business’s sales and credit, plus the length it has been in business.
There are more regulations today that prevent “loan shark” companies. This is beneficial to small businesses because they are less likely to be taken advantage of. However, proper research still needs to be done because predators still have ways to target your business.
Online lenders that offer merchant cash advances have streamlined processes. It is possible to get your money deposited within 24 hours after you apply. This is very different from traditional bank loans.
The best thing about merchant cash advances is that you do not have to sell any equity for a cash infusion. The lender will take a portion of your credit card sales until the debt is paid off.
Providers for Merchant Cash Advances in 2023
- Rapid Finance is an option for new small businesses with bad credit. They offer advances up to $500,000 and flexible payment options. They require you to be in business for at least three months and have a business checking account.
- Reliant Funding is also an option for new businesses with little to no credit. They offer advances up to $400,000 and have an easy application system that can allow approval within minutes. Your business must have been running for at least six months, and you will have to show at least $10,000 a month in card sales to qualify.
- CAN Capital requires you to have been in business for at least six months and no credit is needed. They offer advances up to $250,000, but they charge an administrative fee and require you to pay daily.
Alternative Small Business Lending Options
If merchant cash advances do not work for your business, there are other options available.
Invoice financing involves your business selling your accounts receivable to a third party for a discount. A bridge loan requires an asset that can cover this short-term loan. It typically is used for selling property to cover new property.
If your business needs new equipment, consider equipment financing. Lenders will loan you money to buy new equipment and use the equipment as collateral. You can try getting a business line of credit if your business has been established a little longer and has decent and steady sales.
For other small business lending options, including grants and Covid-19 relief, visit the Small Business Administration.
The Bottom Line
Merchant cash advances have come a long way, but they still may not be right for every business. The interest rates on cash advances are lower than ever, and the approval rate is high. The application process is quick and easy. Money can be deposited into your account within 24 hours.
There are many reputable merchant cash advance lenders in 2023. Many of them offer to finance for new businesses that have little to no credit. They require you to have card sales that can be verified through a business bank account.
Finally, if merchant cash advances are not the right fit, there are other options for small business funding.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.