When you need financing for your small business, your first thought is likely a small business loan. While loans are a popular option, they’re not necessarily right for everyone. For businesses that have a large amount of credit and debit card sales, a merchant cash advance may be a great option. Here’s what you need to know.

What Is a Merchant Cash Advance?

A merchant cash advance is a type of financing for businesses. It’s not a loan, but it is an alternative to traditional lending. Also called an MCA, this option provides an advance on your future credit and debit card sales.

Getting a merchant cash advance is typically much easier than qualifying for a business loan. While MCA companies do look at your credit score, they pay more attention to your credit card receipts. The information helps them to determine your ability to repay the advance. The application process is quicker, and you typically get your finds in a matter of days.

What Is a Holdback?

If you’re looking at an MCA, one term to be familiar with is “holdback.” A holdback is the percentage of daily credit card sales that the company applies to your advance. It’s typically a fixed percentage, ranging from 10% to 20%.

As your payments are based on a set percentage, your sales volume determines how much you pay (and how quickly you repay your advance). The more credit card sales you have, the higher your payments. You also pay off your advance more quickly. On days where you have lower sales, your payments are lower.

Is a Merchant Cash Advance Right for Your Business?

An MCA may be easier to obtain, but you still need to compare your options to determine if it’s the right move for your business. These advances generally cost more than conventional business loans, so it’s important to ensure that you can afford them. Pay attention to the terms of any MCA before you sign on the dotted line. Another critical thing to keep in mind is that MCA companies don’t report your payments to the credit bureaus. As such, they won’t help you to build your credit history or strengthen your credit profile. A loan or line of credit might be a better option if that’s what you’re looking for from your financing.

For many businesses, a merchant cash advance provides an excellent alternative to a conventional business loan. Look at all of your available options to determine the best course of action for you.