Updated 7/7/2024

There comes a time — even several times — in the life of every business where cash flow temporarily stops flowing, and it becomes necessary to get a business cash advance

On the other side of the spectrum, profitable limited-time opportunities can arise unexpectedly, and once again, a business cash advance makes strategic sense as it can provide you with quick access to cash to capitalize on them. 

But what exactly is this type of financing, and what are the best uses of business cash advance? Learn more in this article.

What Is a Business Cash Advance?

A business cash advance, most commonly known as Merchant Cash Advance (MCA), isn’t technically a business loan nor a business line of credit.  It’s an advance on future sales — typically, credit and debit transactions. 

For this reason, business cash advances are also called merchant cash advances (and this is the term we use here at National Business Capital).

Business advances has several important characteristics that you need to know about, including:

  • Advance of Cash – As the name suggests, business cash advance means that you receive a lump sum of cash upfront;
  • Repayment Through Sales – As opposed to other types of financing, repayment for MCA is tied to future credit card sales or receivables.
  • Short-Term Financing – Another key characteristic of business cash advance is that it’s typically used for short-term financial needs.
  • High Costs – Since Merchant Cash Advance offers quick access to funds with minimal paperwork and doesn’t require collateral, it’s associated with higher costs.
  • Flexible Repayment – This type of financing provides a lot of flexibility because payments vary based on daily sales.
  • Quick Access to Funds – As we mentioned earlier, Merchant Cash Advance allows you to get quick access to funds due to a faster application and approval process.
  • No Collateral Required – This type of financing is unsecured, which means that you won’t have to provide a collateral as a guarantee against defaulting. 
  • No Fixed Term – As opposed to term loans, repayment continues until the advance and fees are fully repaid, with no set end date.

How Does a Business Cash Advance Work?

Businesses that receive a business cash advance agree to remit a small fixed percentage of future credit and debit card sales until the advance (principal plus accrued interest) is paid in full. The payment is made at the end of each business day and handled automatically.

One of the most beneficial aspects of a business cash advance is that, as noted above, the repayment amount is dynamic rather than static (as is typically the case with a working capital loan). 

As such, if sales on a particular day are above average, a little bit more is allocated to the loan — which moves the needle closer to full repayment. Alternatively, if sales on a particular day are slower than normal, borrowers have more funds available on hand to boost sales and get back on track.

What Are The Best Uses of a Business Cash Advance?

If you want a business cash advance solution with no restrictions or rules on how to use it, National Business Capital gives you access to dozens of offers through our diverse lender platform. 

This isn’t because we don’t take an interest in their success. Rather, it’s because we firmly believe that our customers — rather than us — are in the best position to make smart, timely, and strategic spending allocation decisions.

With this being said, we are available to our customers 24/7/365 to answer questions and provide guidance, suggestions, and advice. To that end, here are some of the ways that our customers nationwide are using their business cash advance to drive their business forward:

  • Purchase new equipment
  • Purchase new inventory
  • Hire new staff (including temporary/seasonal staff)
  • Cover facility or building repairs, renovations, or upgrades
  • Implementing new technology (e.g., software, telecommunications, mobile devices, etc.).
  • Launching marketing and advertising campaigns

Again, these are just some of the ways that a business cash advance can be used to help bridge a temporary cash flow shortfall, or exploit a profitable and limited time opportunity.

Scenario #1 – Seasonal Inventory Purchase

You are a retail store that specializes in holiday decorations. As the holiday season approaches, you need to stock up on inventory to meet the anticipated high demand for your products. 

By using a business cash advance, you can quickly obtain the funds necessary to purchase a large stock of decorations. The advance is repaid through a percentage of your daily sales, which are expected to be high during the holiday season. 

Scenario #2 – Urgent Equipment Repair

You are a restaurant with a broken-down oven that needs to be repaired urgently. Otherwise, it would disrupt operations and affect revenue. You decide to take a business cash advance to cover the costs associated with the repair. 

With the oven back in working order, you can continue serving customers and repay the advance with a portion of daily sales.

Scenario #3 – Launching a Marketing Campaign

You are a small online eCommerce business that wants to invest more in Marketing and Advertising to gain a bigger market share in your industry.

To do that and boost sales, you plan an aggressive Marketing campaign, including online ads, social media promotions, and Influencer Marketing. Lacking the immediate funds to launch the campaign, you take a business cash advance to run your campaigns. 

The increased sales from the successful marketing effort help repay the advance quickly while also boosting the business’s overall revenue and customer base.

Getting a Business Cash Advance With NBC

If you want to reap the benefits of business cash advance, you can apply for your preferred program with National Business Capital. With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.

Are you ready to get started? Apply here.

Frequently Asked Questions

How is the repayment structured in a merchant cash advance?

Repayment of a merchant cash advance is structured as a percentage of the business’s daily credit card sales or total daily revenue. Instead of fixed monthly payments, the lender automatically deducts an agreed-upon percentage from the daily transactions until the advance, plus fees, is fully repaid. 

This flexible repayment method adjusts with the business’s cash flow, making higher payments on busier days and lower payments when sales are slower, aligning the repayment burden with the business’s revenue fluctuations.

How quickly can I receive funds from an MCA?

Funds from a business cash advance can be received very quickly, often within 24 to 48 hours after approval. The application process is streamlined, requiring minimal documentation, which expedites the review and approval stages. 

Once approved, the lender transfers the lump sum directly to the business’s bank account, providing rapid access to capital for immediate business needs, making MCAs a popular choice for urgent financial requirements.

What is a factor rate in a merchant cash advance?

A factor rate in a business cash advance is a multiplier used to calculate the total repayment amount. Unlike traditional interest rates, the factor rate is expressed as a decimal, typically ranging from 1.1 to 1.5. 

To determine the total repayment, the advance amount is multiplied by the factor rate. For example, if you receive a $10,000 advance with a factor rate of 1.3, you would repay $13,000. This rate reflects the cost of the advance and does not change over time.

Can I use a merchant cash advance for any business expense?

Yes, you can use a merchant cash advance for any business expense. The funds from an MCA are unrestricted, allowing businesses to allocate them as needed. Common uses include purchasing inventory, covering payroll, marketing, equipment repairs, or any other operational costs. 

This flexibility makes MCAs an attractive option for businesses needing quick and versatile financial solutions to address various immediate needs.

What happens if my sales decline and I can't make payments?

If your sales decline and you can’t make payments on a merchant cash advance, the repayment adjusts automatically since it’s based on a percentage of daily sales. This provides some relief during slower periods. 

However, if sales drop significantly or cease, the lender may renegotiate terms, but persistent non-payment could lead to increased fees, legal action, or collection efforts. It’s crucial to communicate with the lender to explore options and avoid severe consequences.