Who should get a merchant cash advance bad credit
MCAs great for businesses who need fast cash and have a well established credit card transaction history. Retailers, or restaurants, are great examples of candidates. Cash advances can also be great for newer businesses who have a great history of credit card sales, but haven’t been operating long enough to build a credit history that traditional lender looks for.
Why business owners should be careful
There’s a lot of benefits to MCAs, but there’s downsides too. There’s one specific downside which can outweigh everything else – the cost. The costs involved with a merchant cash advance can easily outweigh anything else you might get in terms of convenience, etc.
Unlike a traditional loan, a cash advance doesn’t have an APR. Instead, business owners who take a mca pay a factor rate. The factor rate is a decimal point number which represents the amount you have to repay to the provider who gave the cash advance. This can fee can vary, but will be between 1.1 and 1.5. The factor rate is one of the most confused, and misunderstood, aspect of a cash advance because it makes the interest rate look lower than it really is. When you actually look at the number, you’ll see that getting a cash advance is potentially very expensive.
Here’s a good example. Say you take a cash advance of $50,000 – and have a factor rate of 1.3, with a 12 month term – the breakdown is the following. When you multiply the factor rate by the advance amount, you see the totally repayment comes to $65,000. When you look at initially, you’re paying an interest rate of 30%, but the APR could be higher based on the holdback amount.
If you agree to a holdback rate of 15% of daily billables, and your monthly credit card sales average $35,000 over the next year – the daily payment would be $175. The loan would take 372 days to repay. This would put the daily interest rate at 0.15% and the overall APR would be 53.9%. This is double the 30% rate you initially thought you were paying. If your business makes $40,000 in monthly credit card sales, then the APR would climb even higher to 61-62%. When you consider a cash advance using the numbers above, you can see that it’s super expensive money – and you need to be careful before accepting it.
Benefits of Merchant Cash Advances With Bad Credit
Merchant Cash Advance’s have several benefits which make them appealing to business owners who need funding. When considering a merchant cash advance, below are some of the more important benefits to keep in mind
Straightforward applications: As with many types of small business loans, or lines of credit, applying for a mca is something you can do online. You can upload documents online, like your business tax returns, bank account statements, credit card processing statements, and more – online in a few minutes.
Funding is fast: One of the main benefits of a mca is the fact you can get approval fast, and funding even faster. MCA’s can give you a decision within a few hours and give you funds even faster. This is great if you need money fast to cover payroll, or other business expenses that are time dependent.
Credit doesn’t matter: Most business loans demand you have a strong personal and business credit score. MCA lenders are lenient when it comes to credit. Your ability to get approved for a mca depends on how consistent your credit card sales are, and how long you’ve been in business. The MCA provider is reviewing your business, and it’s strength, versus your personal credit history. Keep in mind though, that mca will not help you improve your credit score
No collateral: When you ask a bank for a business loan it’s common they’ll ask for some type of collateral to get the loan. The collateral helps the bank make sure you won’t default on the loan. In a mca, you don’t have to put up any personal or business assets to get a cash advance.
Flexible payment: Small business loans have a fixed interest rate, and a fixed payment. It means you owe the same amount of money every month on your loan. This can be helpful for some, who need to budget their expenses. But for others, it can be a problem – especially if you have a slow month and can’t make the payment. MCA’s give you greater flexibility, since the payments are based on a % of your credit card sales. For example, a mca will require you to commit 10% of your credit card sales for repayment. The dollar amount will vary based on the total amount of sales for the month. This means you only give a proportion of what the business is bringing in – instead of a flat dollar amount which might be higher than what you’re earning for the month.
High limits: Bad credit merchant cash advance’s give you significant leeway in terms of how much you can borrow. It’s possible to get a mca of just a few thousand dollars. Some might even give you a cash advance up to $2 million. MCA have greater leeway to be flexible and offer more money – even though you don’t have credit or collateral.