The Executive Suite: Do merchant cash advances benefit physicians? February 21, 2022

Numerous types of small business funding exist for doctors and medical professionals, including Small Business Administration (SBA) loans, bank loans, and funding from alternative lenders.

SBA and bank loans have the largest loan amounts, longest terms, and lowest rates, but they also have the strictest approval timelines and it can take weeks or months to get a decision. Alternative lenders, on the other hand, specialize in fast funding for smaller amounts and shorter terms.

Merchant cash advances are one of the most common alternative funding products. In this post, we’ll explain what merchant cash advances are, how they work, and how doctors and medical practices can use them to fuel their growth.

What is a merchant cash advance?

A merchant cash advance is not actually a loan—it’s a non-loan form of financing known as an “asset purchase”.

When you receive an MCA, you’ll receive a cash advance up front in exchange for a portion of your practice’s future revenue. Your lender will receive a portion of your daily or weekly debit and credit card sales until the advance has been repaid (along with any fees).

Merchant cash advances are available up to $500,000 depending on the lender. The amount is based on your projected future sales, along with factors like your credit score and financial history.

How do merchant cash advances work?

Merchant cash advances are available from direct online lenders like Greenbox Capital®.

To apply for a merchant cash advance, you’ll typically submit a short form online and a representative from the lender will contact you to continue your application. Depending on how quickly you are able to supply the requested information, your merchant cash advance could be deposited in as little as 24 hours. This makes merchant cash advances ideal for medical practices that need working capital fast or don’t have time to navigate the complicated application process of the SBA or a bank.

Do your research and vet your lending partner carefully to make sure your MCA has the best terms for your business. Don’t apply for or accept an advance from a lender that engages in “loan stacking”—a term used to describe when an advance is granted to repay another advance.

Qualification requirements

Merchant cash advance qualification requirements are much less restrictive than other forms of funding. No collateral is required, but your medical practice must accept debit and credit card payments to qualify. Approval is based on the future potential of your business, rather than just your credit score and financial history. Your credit score and financial history may affect your loan amount and factor rate, but a low credit score is not an automatic cause for denial.

Merchant cash advance rates

Because terms are shorter and qualification requirements are more flexible, MCAs may have higher rates than other forms of funding. However, it’s a common misconception that merchant cash advance rates are always higher than other forms of funding. Ultimately, your rates will be based on your practice’s risk assessment and how quickly you are able to repay the advance.

Merchant cash advances use a factor rate, not a traditional interest rate. Instead of a percentage rate that compounds as you repay the loan, a factor rate is a simple decimal figure that shows how much “extra” you’ll owe on the loan. For example, a factor rate of 1.3 on an advance of $10,000 means you’ll owe $13,000.

Who should apply for a merchant cash advance?

Merchant cash advances are ideal for:

Medical practices that need fast funding to support their growth or take advantage of a short-lived opportunities to grow
Practices that process a lot of debit and credit card transactions
Practices that need smaller amounts of funding
Practices with lower credit scores
Medical practices that do not have collateral, such as real estate and other major assets

How to use a merchant cash advance

MCAs are a flexible form of funding, and often there are no restrictions on how the funds can be used. Typically, merchant cash advances are best used to support growth initiatives with strong ROI potential, such as:

Purchasing inventory
Purchasing or repairing equipment
Upgrading technology
Investing in real estate
Hiring staff
Boosting marketing
Improving patient services

Is a merchant cash advance right for you?

Merchant cash advances offer medical practices a number of advantages over financing options offered by traditional lending institutions, including:

Simplified applications with less paperwork and less rigorous approval requirements
Faster processing and approvals, with funding available in as little as one business day in some cases
More flexibility with no restrictions on how funds are used