July 22, 2017

What is a Merchant Cash Advance and What Kind of Business Uses It?


What is a Merchant Cash Advance and What Kind of Business Uses It?

Financing your small business is about having the right information to make a choice that suits your circumstances. The merchant cash advance is perfect for businesses that meet certain criteria. Small Business Trends spoke with Hanna Kassis from Segway Financial about who should use this financial tool and how it should go about it.

What Is a Merchant Cash Advance?

“A merchant cash advance is a one time capital infusion in the form of a lump sum into a business,” Kassis says. “This is in exchange for a fixed royalty over a fixed period of time.”

Like other financing products, the merchant cash advance has a best case scenario where small business is concerned. These are best for the short term. They rely on the business’s cash flow so there’s no collateral required.

Typically, the funding amount is based on a one month average of bank deposits or credit card swipes. In other words you’ll need to have a steady and sufficient revenue history to apply for one of these. Small businesses can often get the money quickly within one to three days. Generally, the amounts are between U.S. $60,000 and U.S. $70,000. However, you need to have steady monthly revenue of $10,000 a month to qualify.

Boxes to Check

Kassis also says there’s a specific set of small businesses that benefit the most from a merchant cash advance.

“You need to have a clear path to revenue if you’re going to take on this money,” he says adding that business owners need to be ready for a squeeze in their cash flow.

“All of a sudden you’re giving up 10 to 20 percent of every dollar received,” he says.

Kasis suggests there are a few boxes to check to make sure before taking one of these advances you can pay the money back. Buying inventory and flipping it works. Or, you can time a merchant cash advance to cover the slow season when you are fairly certain historically better revenues are ahead.

What Businesses are Right for Merchant Advances?

“This is for new businesses and ones that haven’t been in business for six months as well as businesses with an owner FICO below 600,” Kassis says. A cash advance is also a good choice for shop owners without many hard assets.

It’s a good idea for industries with a high number of transactions per month like restaurants, bars and a lot of B2C companies like retail and even nail salons. One of the criteria is being able to forecast a steady flow of customers.

When is the Merchant Cash Advance Popular?

The merchant cash advance is also a good choice for businesses that can count on a cyclical revenue stream. Kassis says there’s a spike in companies looking for merchant cash advances ahead of holiday seasons.

Why it’s a Good Choice

Let’s say you’re launching a new product line or you need some extra money to get a new client set up. The merchant cash advance is the perfect choice because you can get under $100,000 on the same day in some cases.

It’s a great financial Band-Aid if there is a broken water pipe in your restaurant that needs to be fixed quickly. Best of all, small businesses only need to fill out an application and supply four months worth of bank statements to get going.

Image: Segway Financial

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Rob Starr


Rob Starr Rob Starr is a Staff Writer for Small Business Trends. Rob is a freelance journalist and content strategist/manager with three decades of experience in both print and online writing. He currently works in New York City as a copywriter and all across North America for a variety of editing and writing enterprises.

One Reaction

  1. Aira Bongco

    I can see how this can help you with financing. But is it more reliable than banks and other financing sources?

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