Finally, there are merchant cash advances, or MCAs. A merchant cash advance is quite different from other types of small business financing, particularly because they’re not loans. Instead, they’re known as sales-based financing.
That’s because MCA providers aren’t particularly interested in your credit: most MCA application processes won’t involve a deep look into your business credit score or your personal credit score. Instead, they’ll want to see your annual revenue.
Merchant cash advances are paid back by the provider taking a certain percentage of each day’s debit and credit card transactions until an agreed-upon total has been reached. So instead of making a monthly payment, you’re making payments every time a client pays via card.
That fixed repayment amount is another unique feature. MCAs typically come with what are known as factor rate. The factor rate is multiplied by the size of the advance in order to find the total repayment amount.
MCAs move very quickly and can be used for nearly any business purpose, which makes them very helpful for companies with poor credit or companies who have an immediate need. However, the effective APR on an MCA can reach triple digits.