Merchant Cash Advance: Fast Funding for Businesses

Merchant Cash Advance: Fast Funding for Businesses
Merchant Cash Advance


Merchant cash advance (MCA) is a specific type of short-term business financing solution designed to help Australian businesses bridge cash flow gaps and access funding quickly.

Unlike traditional loans with fixed monthly payments, merchant cash advances provide a lump sum of capital in exchange for a percentage of your future sales.

This can be particularly helpful for businesses experiencing temporary cash flow gaps, seasonal fluctuations, or needing funds for unexpected expenses.

Who Can Benefit from Merchant Cash Advances?

Merchant cash advances (MCAs) can be a valuable tool for several Australian business types seeking a fast financial boost. Here’s a breakdown of businesses that might benefit the most:

  1. Hairdressers
  2. Online stores
  3. Retail stores
  4. Restaurants and cafes
  5. Service businesses
  6. Trades and contractors.

It’s important to note that MCAs are best suited for businesses with a steady stream of card transactions. Businesses with low or unpredictable sales may find repayments challenging.

What are the Uses of Merchant Cash Advances?

Merchant cash advances can be a helpful funding option for Australian businesses needing a quick injection of capital. While not ideal for every situation, MCAs offer some unique uses:

Bridging cash flow gaps: MCAs can help cover temporary dips in sales or unexpected expenses, smoothing out your cash flow.

Inventory purchases: Need to stock up for a busy season or take advantage of a good deal on supplies? An MCA can provide the funds to invest in inventory.

Marketing and advertising: Want to launch a marketing campaign or invest in new advertising initiatives?  An MCA can help finance these efforts.

Equipment upgrades: Essential equipment breakdowns can disrupt your business. MCAs can help cover the cost of repairs or replacements.

Benefits of Using a Merchant Cash Advance

Merchant Cash Advances (MCAs) offer several advantages for Australian businesses, particularly those needing a quick financial boost. Here are some key benefits to consider:

Fast and easy access to funds: Compared to traditional loans with lengthy application processes, MCAs can provide funding much faster. This can be helpful for businesses needing immediate capital to cover unexpected expenses or take advantage of time-sensitive opportunities.

No fixed monthly payments: Unlike traditional loans with fixed monthly repayments, MCAs offer more flexibility in how you repay the advance. Repayments are typically automated daily or weekly debits from your business bank account, and the exact amount deducted is a percentage of your sales volume. This means that during slower sales periods, your repayments are lower, helping to improve cash flow.

Improves cash flow: By providing a quick injection of capital, MCAs can help bridge cash flow gaps. This can be especially beneficial for businesses with seasonal sales fluctuations or those waiting on outstanding invoices from customers.

Less reliance on traditional loans: For businesses with bad credit or limited financial history, obtaining traditional loans can be challenging. MCAs can be a more accessible alternative, with less emphasis placed on credit scores during the application process.

Drawbacks of Using Merchant Cash Advances

While MCAs offer some advantages, it’s important to be aware of the potential drawbacks before applying. Here are some key considerations:

Higher effective interest rates: MCAs don’t use traditional interest rates. Instead, they use factor rates, a percentage of the total MCA amount that the lender charges. This fee is added to your daily or weekly sales deposits to determine the repayment amount. When calculated on an annual basis, the effective interest rate on an MCA can be significantly higher than a traditional loan.

Daily or weekly repayments can impact cash flow: While repayments are tied to your sales volume, frequent debits from your account can still strain your cash flow, particularly if your sales are slow or unpredictable.  It’s important to factor in the potential impact on your cash flow before applying for an MCA.

Not Ideal for all businesses: MCAs might not be the best fit for all businesses. Businesses with low or unpredictable sales volumes may struggle to keep up with repayments during slow periods. Additionally, the high effective interest rates can make MCAs an expensive option for long-term financing needs.

How Does a Merchant Cash Advance Work?

The MCA application process can be relatively straightforward compared to traditional loans. Here’s a breakdown of the typical steps involved:

Eligibility requirements: Most MCA lenders require Australian businesses to have a minimum monthly credit card processing amount and be operational for a specific timeframe (usually at least 6 months).

Required documentation: The documents needed for an MCA application can vary depending on the lender, but they often include basic business information, bank statements, and recent processing statements.

Approval process and timeline: Approval for an MCA can often be quicker than a traditional loan, with some lenders offering decisions within 24 hours.

Merchant Cash Advances Repayment Structure

Once approved, understanding the repayment structure is key. Here’s what you need to know:

Factor rates vs. interest rates: Unlike loans with fixed interest rates, MCAs use factor rates. The factor rate is a percentage of the total MCA amount that the lender charges. This fee is then added to your daily or weekly sales deposits to determine the repayment amount.

Daily/Weekly direct debits: Repayments for MCAs are typically automated daily or weekly direct debits from your business bank account. The exact percentage deducted is tied to your sales volume.  For example, if your factor rate is 1.2 and your daily sales are $1,000, you will repay $1,200 ($1,000 sale + $200 factor fee).

Early repayment options: Some lenders may allow early repayment of your MCA, but there might be associated fees. It’s important to understand these fees before applying.

The final step is understanding the true cost of an MCA. This involves not only the factor rate but also any additional fees associated with the application, processing, and early repayment (if applicable). Dividing the total cost of the MCA by the total funding received will give you a clearer picture of the effective interest rate you’re paying.

Is a Merchant Cash Advance Right for Your Business

Before deciding on an MCA, it’s important to evaluate your specific business needs. Here are some key questions to consider:

Do you have short-term cash flow gaps? MCAs can be helpful for covering unexpected expenses, seasonal fluctuations, or taking advantage of quick business opportunities.

Do you need funding quickly? The fast approval process of MCAs can be appealing if you need access to funds urgently.

Alternative Financing Options

Merchant cash advances aren’t a one-size-fits-all solution. Here are some alternative financing options to consider:

Small business loans: Traditional small business loans from banks or credit unions offer fixed monthly payments and may have lower overall costs if you qualify for a good interest rate.

Invoice factoring: With invoice factoring, you sell your outstanding invoices to a factoring company at a discount to receive immediate cash.

Business credit cards: Business credit cards can provide a revolving line of credit for ongoing business expenses.

Making an Informed Decision

To make an informed decision, compare MCAs to other financing options based on several factors:

Interest rates or factor rates: Consider the effective interest rate of the MCA compared to the interest rates of other loan options.

Repayment terms: Fixed monthly payments of traditional loans might be easier to manage compared to the sales-linked repayments of MCAs.

Ease of access: The fast approval process of MCAs can be advantageous if you need funds quickly, but qualifying for a traditional loan may be easier for businesses with good credit history.

By carefully evaluating your needs and comparing different financing options, you can determine if a Merchant Cash Advance is the right fit for your Australian business.

Using Merchant Cash Advances Responsibly

Obtaining a Merchant Cash Advance can be a helpful way to boost your business finances, but it’s important to use it responsibly. Here are some key tips:

Negotiating with MCA lenders: Before signing any agreements, take time to compare offers from multiple lenders. Negotiate the factor rate and any associated fees to get the best possible terms for your business.

Understanding the terms: Make sure you fully understand the terms of your MCA agreement before signing. This includes the factor rate, repayment schedule, and any early repayment fees.

Managing cash flow: Since MCA repayments are tied to your sales volume, it’s essential to have a solid plan for managing your cash flow. Carefully monitor your sales and budget accordingly to ensure you can comfortably meet your repayment obligations.

By following these tips, you can leverage a Merchant Cash Advance to your business’s advantage while keeping your finances under control.

Ready to Unlock Growth Potential with a Merchant Cash Advance?

DotCapital can help you secure a Merchant Cash Advance tailored to your business needs in Australia. Our experienced finance brokers will guide you through the application process and negotiate competitive rates.

Get started today and see how an MCA can help bridge cash flow gaps and fuel your business growth. Call us on 03 8707 2892 or click the button below to apply online.

FAQs About Merchant Cash Advances

Here are some of the most frequently asked questions about Merchant Cash Advances:

Can I use a Merchant Cash Advance for personal expenses?

No, Merchant Cash Advances are meant to be used for business purposes only. The funding comes from a percentage of your future sales, so it’s important to use it for business needs that will generate revenue.

What happens if my sales drop?

Since MCA repayments are tied to your sales volume, a significant drop in sales can make repayments difficult. Some lenders may offer options to adjust repayments based on your situation. It’s important to communicate any sales concerns to your lender as soon as possible.

Is there a credit check involved in getting a Merchant Cash Advance?

While credit checks may not always be mandatory, some MCA lenders may consider your credit history as part of the application process. However, compared to traditional loans, MCAs can be more accessible to businesses with less-than-perfect credit.

Can I get MCA with bad credit?

Getting a Merchant Cash Advance (MCA) with bad credit is possible. Unlike traditional loans that focus heavily on credit scores, MCAs prioritise your business’s credit card sales volume. So, a strong sales history can outweigh a poor credit score. Additionally, some lenders may use alternative data sources to assess your repayment ability.

However, bad credit can still mean a higher factor rate (increased cost) and potentially limited lender options.

Can I get MCA without bank statements?

Securing a Merchant Cash Advance (MCA) usually involves providing bank statements to verify your business’s financial health. However, in some cases, you might be able to use alternative documents like tax returns, processing statements, or invoices. The lack of bank statements can make it harder to get approved and may result in higher costs due to increased risk for lenders.

Can I get MCA as a sole trader?

Sole traders in Australia can definitely get Merchant Cash Advances (MCAs).  This is because MCAs focus on your business’s sales volume, rather than personal credit scores, making them a good option for those with limited business credit history. The application process is also often simpler than traditional loans.

However, be aware that you might need to provide a personal guarantee and ensure you keep your business and personal finances separate when using an MCA to repay the advance.

How much can I borrow as an advance?

The exact amount you can borrow with a Merchant Cash Advance (MCA) depends on your business’s situation. Lenders consider your average monthly sales volume, business age and financials, and their own risk tolerance. Generally, MCAs in Australia range from $5,000 to $500,000.

What is the duration of an MCA loan?

Merchant Cash Advances (MCAs) don’t have a fixed repayment term like traditional loans. Instead, repayments are tied to your business’s sales volume. A percentage of your daily or weekly sales is automatically deducted from your bank account to repay the advance.

Lenders will provide an estimated repayment period based on your situation, but this can fluctuate depending on your sales. The faster you sell, the quicker you repay and potentially save on costs.


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