Small business owners have numerous options for financing. If you operate a retail or storefront business, you’ll be especially intrigued to learn about merchant financing loans – the lending product designed specifically for your type of business.

Merchant financing can help you overcome the daily challenges of running a retail location or ecommerce business. It can also provide the fuel for new growth opportunities.

We’re breaking down everything you need to know about merchant financing – including the ins and outs – so you can decide if merchant financing loans are the right fit.

What is merchant financing?

Merchant financing is a type of business lending product that’s specific to merchants, retailers, or any business with a merchant storefront or a credit card processing system. However, it is most often used to describe merchant cash advances.

Merchant cash advances (MCAs), also known as merchant financing loans, grant retailers a lump sum of capital upfront which they then replay via future credit card sales. This financing product isn’t technically a loan, instead, it’s an advance on your business’ sales.

Merchant financing loans are ideal for businesses that have high credit card sales volume, need funding quickly, or have had a hard time qualifying for other business loans.

However, MCAs are only available to businesses that accept credit cards. If your business doesn’t take credit cards, you’ll have to look into other options for small business financing.

What amount of merchant financing can I get?

The amount of merchant financing loans that you can get will depend on your financing needs, your business’ financial criteria, and the specific requirements of every lender. Generally, this can range anywhere from $2,500 to $500,000 or even higher.

Keep in mind that the interest rates on merchant financing loans can be higher compared to other business loans. If you’re looking for large funding amounts, you may want to consider solutions with longer terms and lower rates.

What are the interest rates of merchant financing loans?

The interest rates of merchant financing loans start at 1.14, but can reach as high as 1.20 or more depending on the company’s financial history & health, among other factors. Because they don’t come with a predetermined term length, they are typically expressed as a decimal instead of percentage to represent the total cost of borrowing.

Merchant financing is fast, flexible, and has the benefit of keeping your cash flow steady as you make payments. In exchange for all these benefits, interest rates tend to be higher on merchant financing loans compared to other products.

How does merchant financing work?

Merchant financing is kind of an advance on your business’s future sales. You’ll receive an influx of cash upfront, but instead of a set repayment schedule, the lender will automatically deduct a percentage of your daily credit card transactions until your borrowed amount – plus interest – is paid off.

Lenders will set up a system where they’ll automatically intercept the money generated from your business’s credit card sales. In other words, you won’t have to manually submit payments. This setup can be ideal for business owners looking to save time.

On days when your business makes more sales, you’ll pay more towards your debt. On days when things are slow, you’ll pay less. Even better, you won’t have to make any payments on days when you don’t make sales. In this way, your loan payments are directly tied to your business’s performance.

Merchant financing typically works immediately and can be used to finance a number of different business expenses – such as operating costs or emergencies. Many businesses will also use merchant financing to smooth out cash flow issues that arise out of slow seasons or other disruptions.

Many businesses will use them to:

  • Fill client orders
  • Purchase inventory or supplies
  • Upgrade equipment
  • Hire new employees
  • Renovate a store or commercial location
  • Launch marketing campaigns
  • Purchase new technologies
  • Take advantage of new expansion opportunities

What is the difference between merchant financing and a merchant cash advance?

The main difference between merchant financing and a merchant cash advance is that the first one is a type of business loan that you repay over a period of time, while the second one describes an advance on your business’ future earnings. When you take a merchant cash advance, the lender will automatically deduct a percentage from your credit card sales until your debt is paid off.

Although most merchant cash advances are paid off quickly, there’s technically not a definitive end date, since repayment depends on your business’s performance.

Sometimes, merchant financing loans may be used to describe regular business loans used by retailers and other store-front businesses.

What are the requirements for merchant financing loans?

The specific requirements for merchant financing loans will depend on each lender, but most lenders will ask for bank statements, credit history, business tax returns, credit card processing statements, and at least $120,000 in annual revenue, among others. Generally, it is also required that the company has been at least 3 months in business.

Merchant financing loans have some of the highest approval rates compared to other types of business funding options. This makes them a popular solution for startups and other businesses that have been traditionally excluded from financing.

They are available at banks, credit unions, and online lenders. There will be some variations in requirements and funding times depending on the type of lender you work with. Banks are known for having the strictest requirements.

While online lenders tend to be more lenient and have faster application processing times.

Most banks will want to see that you’ve been in business for at least 2 years. They will also likely also have higher revenue requirements.

The good news is that your credit score doesn’t hold as much weight when you’re applying as for merchant financing loans versus traditional business loans or lines of credit. The most important factor lenders will look at is your credit card sales. This will heavily impact both your approval odds and your funding amount.

What are some of the advantages and disadvantages of this type of financing?

Like any form of business lending, this type of financing also has its pros and cons. Here are some of the biggest advantages of merchant financing loans:


Easy to qualify for

Merchant financing loans are some of the fastest, easiest types of business financing to obtain. They’re also much more accessible than traditional business loans. This is because factors such as your credit score or business history don’t weigh as heavily. Instead, lenders are more interested in your revenue levels and daily credit card sales.

Automatic repayment schedule

With merchant financing, you’ll never have to worry about missing a payment. An automatic payment structure takes the hassle out of planning your payments and eliminates late fees and rejected payment fees.

Plus an automatic repayment structure means you’ll be able to repay your funding amount at your own pace and based on your business’s performance.

Fast repayment

Merchant financing is a short-term form of financing, which means you won’t be stuck for years with debt hanging over your shoulders. Oftentimes, the entire funding amount plus interest can be paid back in a year or less.

While longer-term loans tend to feature smaller payments, they are also more expensive when taking into account the lifetime of the loan. Merchant financing loans allow you to pay off your debt quickly, and you may end up shelling out less than you would with a longer-term loan.


Before you decide whether this type of financing is right for your business, it’s important to take into account the disadvantages of merchant financing loans:

Daily repayments

Although your payments will vary depending on how well your business is performing, you’ll still have to pay a significant portion of your proceeds on every credit card sale. This could easily eat into your cash flow and stifle your bottom line.

Larger payments

Merchant financing features short repayment terms, unfortunately, the downside is that you’ll usually end up having to pay higher interest rates and fees. Make sure you’ll be able to manage large, frequent payments. If not, you may be better off with a longer-term form of financing, such as a term loan or business line of credit.

Are merchant financing loans right for my business?

Merchant financing offers many benefits, but it may not be the right fit for every business. If you’re hesitant about high rates and fees, you’ll want to hear about funding alternatives that resolve these issues.

Small Business Administration (SBA) loans

SBA loans are a popular choice for all types of businesses, including retailers. These loans boast low-interest rates, high funding amounts, long terms, and can be used for almost any type of business expense.

You can hire staff, purchase inventory, open a new location, invest in the latest technology systems, launch new products, and more.

There are also many different types of SBA loans. You can choose between 7(a) loans, 504 loans, microloans, and more. Make sure to discuss with your lender the different SBA loan types to decide which would work best for your scenario.

SBA loans are offered by both banks and online lenders. Despite all their benefits, these loans can be slightly harder to qualify for. You’ll need good credit and sound business financials. However, your approval odds will be higher when you work with an online lender versus a bank.

Business line of credit

Business lines of credit work similarly to credit cards – minus the sky-high interest rates. They’re incredibly flexible because they allow you to withdraw funds as you need from a pre-approved credit line. You’ll only need to pay back what you borrow and you can use the proceeds for just about any type of business expense.

Business lines of credit also make excellent emergency funds – since there’s no pressure to use your funds right away. You can wait until you have an unexpected expense or an expansion opportunity presents itself.

Term loans

Term loans are what most people think of when they envision a business loan. They provide a lump-sum of capital you’ll repay over regular installments. Repayment terms can vary greatly. Some may be as high as 25 years. But you can also find term loans with repayment periods as quick as a couple of months.

When compared to merchant financing loans, term loans tend to have less frequent payments, higher funding amounts, and are more affordable. Still, the exact interest rates you qualify for will depend on your lender and your business’s financials.

One of the downsides to term loans is that they tend to be less flexible. Oftentimes, you’ll need prior approval from your lender for how you’re going to use the funds.

This can be an obstacle for businesses that don’t know the final cost of a project. Sometimes, lenders may impose prepayment penalties or collateral requirements.

Find the best rates on merchant financing loans

If you’re looking to compare multiple merchant financing loan offers – or any business lending product for that matter – you don’t have to apply at more than one lender.

National is a top online small business financing marketplace that generates personalized financing offers based on your specific criteria and needs. You can browse the funding products, rates, and terms you qualify for before selecting the best fit.

Explore merchant cash advances, business loans, lines of credit, invoice financing solutions, and much more. Our experts will guide you through each step to ensure you’re making the best decision for your business.

The best part? The entire funding process, from start to finish, takes mere hours. Curious about the business financing offers you could qualify for?

Get in touch with the experts at National and apply now!