First, try and estimate your factor rate taking your credit history into account

First, try and estimate your factor rate taking your credit history into account

  • The maximum loan amount for a merchant cash advance will be decided by your provider.
  • The factor rate of the advance may be anywhere from 1.14 to 1.48, and it could be potentially higher.
  • The funding term for a merchant cash loan is a bit different than other types of funding. The term depends on how long it will take you to pay back the loan, plus the additional fees. Generally, this takes about eight to nine months.

Your rate could vary depending on the provider you end up using, your credit and business history, the amount of money you are borrowing, and other variables.

We should also point out that the factor rate is just one part of the equation. Your provider may add other fees on top of the factor rate.

Loan Term

The average funding term for an MCA is usually around nine months, but you should be able to guess your loan term without too much trouble. Multiply that by your desired loan amount, and then look at your sales history to figure out how long it would take to pay that off with 10% to 20% of your credit card sales.

Let’s look at another example. If you needed to take out $50,000 and you had a factor rate of 1.48, then you’d need to pay back $74,000. Let’s say your business generated $40,000 a month in credit card sales. 15% of that would be $6,000. If you were paying back $6,000 a month, it would take a little over 12 months to pay back your MCA.

Approval Process

The approval process for an MCA is known for being much faster than other types of small business financing. In fact, from what we’ve heard, the bottleneck usually ends up being the merchant needing to send in the required documentation. So, you can speed up the process by having that ready as soon as possible.

Bad Credit or Limited Credit History

Business owners without an established credit history may have trouble qualifying for a bank loan. In some situations, it makes sense for these people to avoid taking on credit. When that’s not an option, an MCA can be a viable solution.

The main benefit of this type of funding is that it can be a way to get working capital when other financing options are not available.

The Risks

This type of funding is expensive. Before you online instalment loans Washington take out an MCA, you need to know your business can survive on 80% of your credit card sales for the better part of a year. If it can’t (or even if it’s too close to tell for sure), then you shouldn’t get this type of funding.

The risk is that if you can’t survive on a fraction of your credit card sales, then you’ll eventually go out of business. If you’re worried that this might happen to you, then we recommend seeking out an SBA loan made for struggling businesses.

Main Advantages

The main advantage of a merchant cash advance is that businesses with bad credit or a limited credit history still have a chance of being approved. Also, this type of funding generally doesn’t require collateral. You tend to get your merchant cash advance funds faster than you would with a different type of funding.


You’ll likely pay more for a merchant cash advance than you’d pay for a different type of small business funding. This is because of the factoring fee and additional fees that may be stacked on top. The cost of getting a merchant cash advance is higher than other types of loans and funding. Costs are defined as factor rates, not interest rates. A factor rate is not tied to a specific time period. Also, if you pay off an advance more quickly, you won’t save money on interest.

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