Do E-Commerce Companies Qualify for Merchant Cash Advances?

E-commerce companies have become increasingly popular over the past decade, with more and more businesses moving online to sell their products and services. As these companies grow, they often need access to financing to help with things like inventory, marketing, and other operating expenses. One financing option that e-commerce companies sometimes consider is a merchant cash advance. But do e-commerce companies actually qualify for merchant cash advances?

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is a form of financing where a company receives an upfront lump sum of cash in exchange for a percentage of future credit card sales. The amount advanced is typically based on the company’s average monthly credit card volume.For example, an e-commerce company with $100,000 in average monthly credit card sales could qualify for a $20,000 merchant cash advance. The MCA provider would then take a fixed percentage of the company’s daily credit card receipts – usually around 15-20% – until the full $20,000 plus a fee is repaid. This repayment process usually takes 3-9 months.MCAs are not considered loans since there is no set repayment schedule. The daily payments fluctuate based on credit card sales volume. MCA providers also do not check business or personal credit scores like traditional bank loans. Instead, they focus more on a business’s processing history and sales volumes when making approval decisions.

E-Commerce Company Qualifications

So can e-commerce companies actually get approved for merchant cash advances? The short answer is yes – most e-commerce businesses are eligible as long as they meet a few basic criteria:

• Minimum monthly credit card sales – Most MCA providers look for at least $5,000 in average monthly credit card volumes. Some may go as low as $2,500 for newer companies.
• Time in business – MCA providers generally require that a business has been operating for at least 9-12 months. This helps demonstrate stability.
• Business structure – MCAs are available for sole proprietors, LLCs, S-corps, C-corps, and partnerships.
• Industry – All types of retail and service industries qualify, including online stores. High-risk businesses may face more scrutiny.
• Credit card processor – Businesses need to process credit cards to repay an MCA. Popular processors like Stripe, Square, and PayPal work.

As long as an e-commerce company meets these core criteria, they should qualify for merchant cash advance financing. Processing at least $5,000 per month in credit card sales is usually the key factor.

Pros and Cons for E-Commerce Companies

Merchant cash advances offer some unique pros and cons compared to other financing options like business loans and lines of credit:Pros

• Fast approval decisions and funding in as little as 2-3 days
• No collateral required
• No personal credit checks
• Flexible daily payments based on sales
• No prepayment penalties

Cons

• Higher cost with rates from 1.10 – 1.50 versus loans
• Daily payments can be unpredictable
• Potentially repaid faster than expected
• Limited financing amounts

For many e-commerce companies, the quick access to capital and flexible repayment structure outweigh the higher costs of an MCA. But for more established companies, a business loan may be more affordable long-term.

MCA Uses for E-Commerce Companies

E-commerce companies can use merchant cash advance funds for a variety of business needs:

• Purchasing inventory – Covering the upfront costs of new inventory orders
• Marketing and advertising – Paying for online ads or other customer acquisition costs
• Seasonal expenses – Managing higher costs during peak sales periods
• New equipment – Upgrading computer systems, servers, websites
• Hiring staff – Bringing on additional employees to support growth
• Debt consolidation – Paying off higher interest debt into one MCA payment

Having quick access to capital through an MCA provides e-commerce companies with greater flexibility to jump on opportunities to grow their business. And the ability to scale repayment with credit card sales helps match cash flow to expenses.

The MCA Application Process

Applying for a merchant cash advance as an e-commerce company is relatively simple and can often be completed fully online:

• Initial application – This collects basic information on the business, ownership, and credit card processing. Approvals can sometimes happen at this stage.
• Document submission – If approved initially, the MCA provider will request documents like bank statements, credit card processor statements, and identification. This helps verify the business details.
• Final approval – With documents reviewed, the MCA provider issues a final approval and term sheet detailing the advance amount, rates, and repayment process.
• Contract and funding – After agreeing to the term sheet, the business signs the MCA contract electronically. Funding into a business checking account happens in as fast as 24-48 hours.

Many MCA providers like Fundbox, Kapitus, and Pearl Capital have online applications and can complete funding in just a few days. This makes the financing process simple and fast for e-commerce companies.

Tips for E-Commerce Companies

Here are some tips for e-commerce companies considering and applying for merchant cash advances:

• Have at least 12 months of operating history. This demonstrates business stability.
• Have clean and consistent credit card processing over 3-6 month periods. Avoid large fluctuations.
• Be prepared to provide recent bank and credit card processor statements. This speeds underwriting.
• Consider both MCAs and business loans to compare costs. Loans may have lower rates for established companies.
• Only accept what you need so that repayments are affordable. Don’t get overextended.
• Have a plan to use the capital to grow your business and cash flow.
• Be cautious of providers charging origination fees. Go with companies that broker direct with funders.
• Read contracts thoroughly and get clarity on repayment amounts before accepting an MCA.

The Bottom Line

E-commerce companies are very viable candidates for merchant cash advance financing. As long as some basic qualifications are met, most online retail businesses can get approved for MCAs. Just be sure to compare options, understand the costs, and borrow responsibly. Used strategically, an MCA can provide the working capital e-commerce companies often need to take advantage of growth opportunities.

Frequently Asked Questions

What credit score is needed for a merchant cash advance?

Merchant cash advances do not check personal or business credit scores. Approval is based more on average monthly credit card sales and processing history.

How quickly can an e-commerce company get merchant cash advance funding?

Funding can be received as fast as 24-48 hours after signing the MCA contract. The entire application and approval process usually takes between 2-4 weeks.

Are MCA payments fixed for e-commerce companies?

No, MCA payments fluctuate daily based on a fixed percentage of credit card sales. There is no set payment schedule. Payments go up and down with volume.

Can an MCA be repaid early?

Yes, MCAs can be repaid early without any prepayment penalties. Paying an MCA off faster can reduce the total interest paid.

What happens if an e-commerce company stops processing credit cards?

If credit card processing stops, the MCA would go into default. The provider can place the MCA for collection or settlement of the outstanding balance.

Conclusion

In summary, most e-commerce companies will qualify for merchant cash advances as long as they process around $5,000 per month in credit cards and have been operating for at least one year. MCAs offer quick financing that can be used to purchase inventory, market online, or expand the business. While more expensive than loans, MCAs do not require collateral or credit checks. For e-commerce companies needing fast capital, a merchant cash advance can provide an accessible financing solution to fuel growth.