Need cash fast but have bad credit? A merchant cash advance (MCA) could be your solution. It's not a loan. You sell a part of your future sales for a lump sum now.
How MCAs Work
MCA providers focus on your daily sales, not your credit score. They care about your business's health.
Here’s the deal:
- You get a cash advance.
- You repay it with a small, fixed percentage of your daily card sales.
This means payments adjust to your cash flow. On slow days, you pay less. On busy days, you pay more.
Key Terms
- Advance Amount: The cash you get.
- Factor Rate: A multiplier (e.g., 1.2-1.5) that sets your total repayment. For a $10,000 advance with a 1.3 factor rate, you repay $13,000.
- Holdback: The percentage of daily sales used for repayment (e.g., 10-20%).
Bad credit often means a higher factor rate, making the advance more expensive. But it can be a vital tool for growth when other options are off the table.
Getting Approved
Approval is fast because it's based on performance. Funders look for:
- Consistent monthly revenue (often $10,000+).
- At least 6-12 months in business.
- Steady daily card sales.
Prepare your last 3-6 months of bank and credit card processing statements for a smooth process.
Risks to Watch For
MCAs can strain daily cash flow. Avoid predatory lenders by watching for red flags:
- Lack of transparency on costs.
- High-pressure sales tactics.
- "Guaranteed approval" promises.
Always read the contract. A good broker can help you find a trustworthy funder and understand the terms. An MCA for bad credit is a powerful tool when used wisely.