A Business Cash Advance is a form of funding that offers businesses fast access to capital by advancing money today against the money they will make in the future. BCA’s are also known as receivables contracts. That borrowed money is then repaid through a fixed daily percentage of credit card sales (variable payments) or it can be structured as a fixed payment that does not vary. This type of funding may also be easier for most businesses (including new businesses) to obtain than traditional business funding products.

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Business cash advances may be referred to differently, depending on the website, bank, broker or lenders you are speaking with. 

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Below are a list of terms that you might come across that all refer to business cash advance:

There are two types of BCAs: variable and fixed.

Variable Payments aka Merchant Cash Advance

A variable BCA is also known as a merchant cash advance (MCA). 

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An MCA offers alternative financing compared to traditional business financing. The lender will send you a one-time infusion of capital that you pay back using a portion of your debit and credit card sales, in addition to their origination or other fees. This type of funding is designed for the short term uses and is typically repaid through daily or weekly payments until all the cash advance and MCA provider’s fees are repaid in full. 

MCAs are meant for small businesses that require cash immediately to cover gaps in cash flow or short-term costs. Keep in mind this type of debt can have expensive APRs in the double or even triple digits.

Fixed Payments Advance

A fixed BCA is also known as a Fixed Payment Advance.

Fixed Payment Advances offer borrowers a lump sum of cash they pay back over a set repayment period. 

This type of funding is often utilized for short term requirements, but can also be used for long-term investments as well. Loan amounts and terms are comparative to an MCA. What maxed a Fixed Payment Advance different from an MCA is 1) How to lenders qualified a business for the funding and 2) How the funds are repaid.

Lenders will use the businesses bank statements and revenue that flows through those statements to qualify a business whereas for an MCA the lender will only qualify the business based on the credit card and debit card revenue that a business will receive. Payments are usually made on daily or weekly basis until the debt has been paid back in full.

The maximum length of a business cash advance depends on the type you are applying for. Variable cash advances (MCA's) generally have a shorter repayment period compared to fixed term business cash advances.

Variable vs Fixed

An MCA usually has a repayment period of 2 to 12 months, thus it is ideally for the short term needs. The length of the repayment period is based on credit card receipts. For example, a lender may require that you repay 10% - 25% of your advance with your daily credit card sales and estimate this will take one year.

In comparison, fixed payments BCA's usually have a longer term from 6 to 24 months. Although the overall costs for a fix payments BCA is generally more than its counterpart, the term loan, this type of funding is easier to qualify for and will carry carry far less restrictions. The approval process for this product is also less stringent than a term loan and more flexible than an MCA. Lenders will not be looking at the business’ credit card sales. Rather, they will focus on the business’s bank statements to examine your cash flow and the business owner’s credit score. In many cases, if a business has multiple bank accounts, the lender can combine the revenue from all accounts in their analysis.

The best use of a business cash advance varies on whether it is variable or fixed. 

If it is variable, then the capital should be used for a short-term expense. If it is fixed, then the cash should go toward a longer-term investment.

Variable vs Fixed

Below are sample uses for a variable business cash advance that would maximize the advantages of this debt product.

• Buying inventory
• Purchasing equipment that isn’t too expensive
• Taking care of cash-flow gaps
• Handling operating costs
• Moving forward with an investment opportunity that needs a quick infusion of cash
• Paying for an emergency cost

In contrast, below are sample uses for a fixed business cash advance.

• Embarking on a large construction project
• Buying expensive equipment
• Purchasing a building
• Buying a business
• Making major renovations to your center of operations
• Expanding to another location

A Business Cash Advance is a great financing option for most small businesses when they are looking for an upfront sum of cash quickly.

MCAs in particular are helpful for businesses that need working capital but aren’t eligible for a traditional bank loan or their business revenue mostly comes from credit card and debit cards transactions. They are most valuable if you have to bridge a short-term gap in cash flow and do not want to commit to long-term debt. MCAs are meant for borrowers who want to finance temporary requirements like purchases of inventory, cash-flow gaps or emergency costs. It is easier to qualify for an MCA than more traditional business funding programs.

Below are two tables highlighting the similarities and differences between a merchant cash advance and term loan.

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Pros and cons for variable payment cash advances and fixed payment cash advances are laid out below.

Variable Payment Cash Advance Pros

• Flexibility

• One of the advantages of an MCA is payment amounts aren’t set in stone. A borrower does not owe any money until they make sales.
• There is no specific term and is not considered a loan

• Good credit not needed 

• MCAs are underwritten mostly on your business’ credit card history, so your personal and business credit don’t make much of an impact in determining if you will qualify.

Variable Payment Cash Advance Cons

• Costs are the highest of all business financing types

• MCAs can be quite expensive. It’s not always the case, but MCA lenders tend to charge more because they are betting on the businesses success via its credit card sales. If sales slow, the lender gets paid back more slowly. To balance this risk, the costs can be quite high

• Prepay penalties are common

• Because there is not an amortized interest rate, the effective APR will increase if sales increase and the advance is paid off before the expected end of the repayment term ends

• Administrative fees

• Many MCA lenders add on administrative fees like origination fees. These fees are usually subtracted from your account soon after your funds are disbursed. If you’re borrowing just a minimum advance amount, it might take up a large portion of your capital

Fixed Payment Cash Advance Pros

• Lower interest rates than variable MCA's

• Tend to have slightly lower costs than MCAs

• Predictable payments

• Provide peace of mind through their stability. When you have a fixed payment BCA, you have a predictable repayment schedule. As such, it’s easier for you to plan ahead and budget appropriately

Fixed Payment Cash Advance Cons

• Only qualify using bank statements, this could impact e-commerce and retail sellers who highly rely on credit card/debit card revenue

• Applicants need to have been operating for at least one year, thus new businesses are not eligible
• Standards for qualifying are higher

With an BCA whether a fixed or variable term variety, you’ll probably need to pay back 15%-60% or more of the total advanced/funded amount for which you receive approval. Factor rates for MCAs are determined at origination. The expense is calculated into your scheduled payments. 

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Fixed Payment , an example:‍

• 100,000 advance
• 1.28 factor rate
• $1,000 origination fee
• 12 month term paid daily ~ 252 days

Your finance costs would be as followed: ($100,000 * 1.28) + $1,000 = $129,000

Your payment would be: ($129,000 / 252) = $511.90 per day

You can use our Fixed Payment calculator to estimate your payments. The link is here. 

Variable Payments , an example:

Let's assume that your daily credit card sales are $3,000 per day

• $100,000 advance
• 1.28 factor rate
• $1,000 origination fee
• 12 month term paid daily ~ 252 days
• 17% holdback of your daily credit card sales

Your finance costs would be as followed: ($100,000 * 1.28) + $1,000 = $129,000 << Same as the fixed payment

Your daily payment would vary, depending on the amount of credit/debit card sales you earned that day: If your sales were $3,000 that days payment to the lender would be $3,000 * 17 % = $510

However, if the next day your sales were only $2,000 then your payment would drop to $340 for that day

Your factor rate will vary depending on your business type, monthly sales, business stability, the amount of time you have had your business and other risk elements.

There are a few must-haves that will help you choose the right company to work with now and in the future.

Find a Company That:

• Bases approval upon your volume of sales and the overall potential of what you have created or are in the process of building within your business.
• Offers an easy online application process. You may be asked to include a few bank statements, but typically, that is all that is required.
• Gives you an answer to your application within a couple of days.
• Offers flexibility in financial obligations of the advance you receive, typically based upon a small, set percentage of your business’s daily credit card processing receipts. Since your remittances are not a set amount, your business can go through slow periods and your obligation will adjust accordingly.

According to bizfinance.com, business cash advances are the leading funding solution chosen by small business owners seeking easy terms and limited requirements. But, it is vital to know exactly what you are agreeing to when you apply and that the terms actually make sense for your business and its future success and growth.

Different lenders will evaluate various factors when making a decision for a business cash advance, whether it is variable or fixed.

Lenders don’t need to spend as much time evaluating an application as a bank does for bank loans or other business funding programs. The application can typically be finished and approved in one day if you are very organized with your documentation and your business does not have any underlying issues (more on that below) that could extend the underwriting timeline. Approval rates are usually high and funding can take place within a day or so. 

Business owners looking to apply for an MCA should be ready to provide the following items

• Loan application
• Last 6 to 12 months bank statements
• Last 6 to 12 credit card statements
• Photo ID
• Business License
• Recent years business tax returns

Things that can slow down or stop the process

• Bank statements do not list your business name
• Business not Active with the Secretary of State
• Unresolved Liens & Judgements
• Have not fixed tax returns
• Credit score too low
• No business credit
• Recent bankruptcy
• Not enough business revenue
• Business industry doesn't match lenders risk tolerance

With Lendzero, applying for a business term loan is easy. 

Step 1: Click on the Get Approved button above and answer a few basic questions about your business. We will inform you about your best options and how many exist (this will set your expectations). 

Step 2: After this is complete, you will be asked to create a username and password to begin your electronic loan application. This process normally takes about 6 – 7 minutes (if you have all your documents easily accessible and ready). 

To complete the loan application, here is what you will need to have handy (Fixed Payment BCA):

• Business TAX ID (federal tax id number, aka EIN/FEIN)
• Estimated business revenue and average bank balances
• Social security number for all applicants
• Last 3 months of business bank statements (download the PDF statements from your business bank account)
• Most recent years tax return in PDF format (all pages)

For the Variable Payment BCA, please add your last 3 months of merchant processing statements.

Step 3: Once the application process is complete, we will send you the completed loan application for you to review and sign. Once you have signed for your application, the process is complete. You have officially applied and started your journey to receiving pre-negotiated short term business loan offers. Your Lendzero funding specialist will reach out to you to guide you through the remaining steps of the process, and provide the necessary guidance and support needed with the goal of successfully obtaining the proper loan.