Last updated on March 9th, 2019 at 09:49 am
A merchant cash advance can be helpful for small businesses in need of capital.
Business owners agree to exchange a fixed share of their credit and debit card sales for a lump sum of funding.
We believe that this option should only be a last resort, since the cost can be costly.
Merchant cash advances typically have an APR anywhere between 29% and 132%. Needless to say, this can take a big chunk out of your profits.
That’s why it’s best to avoid this resource, unless you have exhausted all other options.
Our recommendation for those who need a business loan quickly is Kabbage. It is a fast and convenient application that allows you to borrow up to $100,000 with just a few clicks.
For those who feel they have no other choice besides a merchant cash advance, we have thoroughly researched the options to give you our reviews of the top providers, as well as what to look for when applying.
Best Merchant Cash Advance Company – RapidAdvance
When you’ve exhausted other options for loans, we think RapidAdvance is the best provider for a merchant cash advance.
Their qualification requirements are less stringent than those of their competitors. They also offer up to $500,000. In addition to all this, they have excellent customer service, and you can even keep your credit card processor!
Merchant Cash Advance Companies: Top 3 Providers[table “24” not found /]
Why We Recommend RapidAdvance
Good customer service can certainly impact your bottom line, and we found that RapidAdvance was the superior merchant cash advance provider in this area.
Instead of simply pushing you towards their most expensive products, they will take the time to educate you about your options and choose the one that will work best for your business.
Overall, they demonstrate honesty and helpfulness when communicating about pricing and terms. The numbers say it all: repeat customers account for 85% of RapidAdvance’s client base.
Besides superior customer service, RapidAdvance also offers a superb product. In comparison with other top providers, RapidAdvance makes it easy to quality for a merchant cash advance.
In addition, RapidAdvance provides a unique service by allowing clients to keep their current credit card processor.
Most other providers require the use of a specific credit card processor to facilitate the payment process. Finally, you have the ability to borrow up to $500,000 through RapidAdvance whereas CAN Capital caps this amount at $150,000.
As with any merchant cash advance provider, RapidAdvance comes with a hefty price tag, including APRs around 80%, and possibly higher.
Moreover, the factor rate is about 1.20. However, they balance this out by offering discounts for those who’ve been in business for a longer time and those with better credit.
Square Capital: Recommended for Square Merchants
The idea of an affordable merchant cash advance seems like an oxymoron. However, at Square Capital, it’s a reality. Besides its extremely competitive pricing, Square Capital is also much quicker. Still, nothing is perfect.
Only merchants that use Square as their credit card processor are able to access its merchant cash advances.
Square Capital charges only about 35% APR on a merchant cash advance, a rate that is only a quarter to one half the price charged by other providers.
This low rate is thanks to Square’s ability to access data about Square merchants in order to evaluate history and credit card processing volume.
The application process for Square Capital is quick and easy because anyone who’s invited is already pre-approved. In fact, you are able to get funding for your loan the very next business day. Other providers may take at least 3 business days to award funding.
Please note that if you do not already use Square Capital as your credit card processor, you’re out of luck if you want to apply for a merchant cash advance from them.
They can also only offer up to $50,000 for a loan. If you need more capital than that, or if you’re not a Square merchant, you will have to look elsewhere for financing.
All in all, the services offered by CAN Capital don’t differ much from those of their competitors. The main difference is that they have stricter eligibility criteria and lower lending limits than RapidAdvance.
Moreover, there are potential problems with CAN Capital that customers should be aware of. For one thing, you may need to switch to a different credit card processor to use their services.
Also, your business will be put under a lien, so that if you default on your loan, your assets will be seized.
Despite these flaws, CAN Capital is still one of the top merchant cash advance providers in the country. It’s worth considering this company as you’re shopping around for the best rates.
Eligibility For a Merchant Cash Advance
If you are a new business or if your credit is not great, a merchant cash advance is an excellent option, because it has less stringent eligibility requirements than does a traditional loan.
It’s still important to find out ahead of time whether you meet the merchant cash provider’s minimum requirements. Providers are less interested in your credit rating and more interested in your monthly volume of debit credit card sales.
Presently, Square Capital is available by invitation only, based on your Square history and processing volume. In its first year, Square Capital granted advances to about 20,000 businesses.
To qualify for a cash advance from Rapid Advance, you will need to have been in business for at least 3 months. You also need to show $2,500 in monthly credit card processing and a credit score of 500.
To show that you have a physical location (and that you’re not exclusively an online business), you need to also have one year left on your office lease.
Eligibility requirements for Can Capital are 4 months in business, $4,500 in monthly revenue, and a credit score of 550. It’s much more difficult to qualify for a cash advance from Can Capital than from RapidAdvance.
Cost to Borrow
Merchant cash advances are far costlier than loans. You will need to carefully consider this cost when making decisions about a merchant cash advance provider.
As previously noted, the most affordable among the providers listed here is Square.
You need to think about two costs related to merchant cash advances:
The factor rate – This is the price of the merchant cash provider’s markup. The rate can range from about 1.13 to 1.48, differing widely among lenders.
To find out the total amount you owe, simply multiply this number by the amount of the advance. For example, if you borrow $5000 at a factor rate of 1.13, you will need to repay a total amount of $5650.
The retrieval rate – A certain percentage of your debit and credit sales will go to the merchant cash provider daily, at a rate ranging from about 5% to as much as 50%. This rate can vary drastically from one lender to another.
APR is an important factor in comparing the costs of different cash advance companies. This number represents the cost of the loan over one year.
The APR makes a huge difference because the time it takes to pay off your loan directly affects the total cost of the merchant cash advance.
For example, paying off a loan with a factor rate of 1.13 may be manageable over the course of a year, but that same factor rate over the course of three months is very costly.
You will find the APR for the cash advance providers that we’ve reviewed in the chart above for easy comparison.
Presently, Square Capital is advertising factor rates of 1.13% and retrieval rates of 9-13%. With an APR of approximately 35%, these rates are competitive. Businesses are generally expected to pay off the advance within 10 months.
Depending on your daily credit and debit card sales, the APR for a cash advance from RapidAdvance comes out to 50-80%, or even higher.
The retrieval rate is about 20% and the factor rate around 1.20. The company advertises that businesses with at least 3 years in business and a strong credit score may qualify for lower rates.
Businesses are typically expected to pay off the advance in 4-12 months. They will also take your gross sales into account, setting prices in such a way that you won’t pay them more than 8-10% of your monthly sales.
This ensures that you will still be able to make a profit as you work on repaying the advance.
Can Capital’s APR ranges from 29% to 132% (or even higher). That’s because its factor rates can vary between 1.14 and 1.42 and its retrieval rates between 5% and 25%.
If you take a long time to pay off the advance, that will drive your rates up much higher. Businesses are expected to pay it off within 4-10 months.
How Much Can You Borrow?
When comparing merchant cash providers, it’s to your advantage to shop around, comparing rates and the amount that you are eligible to receive.
Just be careful that you don’t affect your credit score with excessive credit checks as you’re shopping around for an advance. Typically, providers will lend you 9-10% of your yearly credit card volume.
Of all the providers reviewed here, you are most likely to get the largest cash advance from Rapid Advance.
Most merchant cash advance providers will lend you about 9-10% of your annual credit card sales volume. You stand to receive the largest advance with RapidAdvance.
Square Capital allows you to borrow between $2,000 and $50,000, depending on your Square processing volume. Most of their loan offers are between $4,000 and $10,000.
RapidAdvance allows you to qualify for 85-250% of the volume of your monthly credit card sales. If you’re a new business with only 3-4 months of experience, you may only qualify for 50%. That means that if you have $10,000 in monthly credit card sales, you can qualify for an advance of up to $25,000.
CAN Capital allows you to borrow no more than 9% of the volume of your annual credit card sales, at an amount ranging from $5,000 to $150,000. If you have $120,000 in annual credit card sales, you would qualify for a maximum of about $10,800, less than half of the amount you could qualify for through RapidAdvance.
Time for Approval and Funding
Compared with loans, merchant cash advances are a quick way to secure funding. Out of the three providers we’ve reviewed, Square Capital is the fastest.
Square Capital: The fact that you do not need to submit an application for Square Capital makes it much faster. If you are invited, you simply log-in to your Square account and select the amount of capital you need.
After reviewing your request, Square can transfer funds to your bank account as early as the next business day.
RapidAdvance: A RapidAdvance staff member will contact you within 24 hours of your online application to find out whether you qualify and they will give you a quote.
If you decide to accept their offers, funds will be available in 3-5 business days.
CAN Capital: CAN Capital allows you to apply for an advance either online or by phone. If you apply online, you will immediately find out whether you’re pre-approved.
You will be notified within 24 hours if you applied by phone. After pre-approval, you will have access to funding in about 3 business days.
Credit Card Processor
Because merchant cash advance providers make their profits by earning a percentage of your daily credit and debit card sales, many of them only work with certain credit card processors.
That means you may have to switch to a different processor to get a merchant cash advance, a circumstance that can be inconvenient and time-consuming, especially if you already have a credit card processor that you like.
Square Capital: To get a merchant cash advance from Square Capital, you also need to use Square as your credit card processor.
RapidAdvance: RapidAdvance offers a significant advantage in that they will allow you to use almost anyone to process credit cards.
CAN Capital: You will need to come to an agreement with CAN Capital about a credit card processor at the time of funding. They only work with a few select processors.
An advantage of merchant cash advances is that they do not typically require the same kind of personal guarantee and collateral demanded of banks.
Lenders often require as a security in case you default on your loan.
While merchant cash advance providers do not require this, some of them may put a lien on your business. Thus, your business assets will be seized should you default on repaying the cash advance.
Square Capital does not require any sort of lien or collateral.
RapidAdvance usually doesn’t demand a lien, and doesn’t require a personal guarantee either.
CAN Capital does put a lien on your business assets if it gives you a cash advance. Your business assets can be seized if you default. However, it does not require a personal guarantee.
Alternatives to a Merchant Cash Advance
Once again, remember that a merchant cash advance should be a last resort. Due to its prohibitive cost, with an APR ranging from 29% to 132%, other potential sources of capital should be investigated first.
Generally, businesses seek a merchant cash advance because of poor credit or tight deadlines. If you are in either of these circumstances, there are other options available.
Both OnDeck and Kabbage can provide short-term loans for those with poor credit. These loans can be secured within 1-2 business days, and usually are 2-3 times less costly than merchant cash advances.
There are also financing opportunities available to specific types of businesses. A non-profit called Accion provides affordable loans to startups, and Fundbox offers same-day loans to invoicing businesses.
Do not seek a merchant cash advance if your credit is not bad. In this case, consider an SBA provider.
Another good option is a peer-to-peer lender like Lending Club or Funding Circle, which offer interest rates 8-18 times lower than most merchant cash advances.
Finally, a business or personal credit card is also a viable option for one-time purchases. With APR averaging around 15%, this is a much more affordable route than paying for a merchant cash advance.
Bottom Line on Merchant Cash Advance Companies
We recommend RapidAdvance as the best option for a merchant cash advance provider because it’s eligibility requirements are less strict, it allows you to borrow larger amounts, and does not require a specific credit card processor.
We also found their customer service to be superior to that of other merchant cash advance companies. However, Square Capital is the best and most affordable provider for Square merchants who need to borrow small amounts.
The WiseSmallBusiness Team is full of industry experts and successful business owners willing to contribute important business articles.