C-Store – Convenience Store Merchant Cash Advance
As an entrepreneur, sometimes you need to turn to alternative methods to raise enough capital for your business, and that’s where merchant cash advances come into play. MCA providers offer funds that companies can use for a variety of reasons such as paying past due bills, obtaining fast cash, or merely because they had a bad sales month. Regardless of what you need your merchant cash advance for, we’re here for you and your business, and to make sure you understand everything that comes along with advance.
• Why entrepreneurs need to be careful with merchant cash advances
• What is a merchant cash advance?
• What are the pros and cons of obtaining a merchant cash advance?
• What are the alternatives to a merchant cash advance?
• Who is the right fit for a merchant cash advance?
• Quick access to cash
• Straightforward application and easy approval
• Bad credit is accepted
• Suitable for a variety of businesses
• Higher fees than more traditional business or bank loans
• Daily reduction of credit card transactions to pay back advance
• Doesn’t help improve credit score
• Unable to merchant service providers until the advance is paid
What is a Merchant Cash Advance?
Unlike loans, a merchant cash advance is an advance that’s provided in a lump sum and works against your business’s future income. The advance is automatically paid back each day by using a percentage of the daily proceeds. The holdback (percentage repaid) is anywhere between 5 percent to 20 percent and is based on an algorithm that consists of the size of the advance, business credit card sales, and the repayment period allotted. The repayment period begins as soon as the funds are received, and the terms are between 90 days and 24 months.
The amount you qualify for is determined by the last two to six months of your business’s credit card transactions. Most providers can offer you an advance of 50 to 250 percent of your credit card sales.
Who is the Right Fit for a Merchant Cash Advance?
The merchant cash advance is an ideal solution for entrepreneurs and businesses that are just starting up and require capital. Traditional lenders look for a long line of credit history, which a new business is unlikely to have. Cash advances are also a good solution for businesses that have high credit card transactions, such as retailers and restaurants, but still, require some fast cash.
Applying for an MCA is a good idea if your business needs the money to pay bills. However, the expense is high, so it shouldn’t be taken without careful thought.
Why Entrepreneurs Need to Be Careful with a Merchant Cash Advance
While many pros come with a merchant cash advance, the major downside is the cost. The cost of convenience can outweigh the other advantages, making it an advance that you need to ensure you understand entirely.
What Are the Alternatives to a Merchant Cash Advance?
After you’ve taken the time to process the fundamentals of a merchant cash advance, and your business doesn’t need funds immediately, there are alternatives. We’ve included two options that can help your business with cash below:
Business Credit Card: These typically require a good credit history. They are also ideal for covering business expenses, and the provider usually offers benefits via a rewards program.
Term Loans: As a loan that’s similar to a mortgage, it’s another that usually requires decent credit. Term loans have both variable and fixed rates, and the amount that you borrow gets paid back over the course of one to five years. The APR on term loans are highly favorable when compared against credit cards or a merchant cash advance.
What Are the Main Benefits of a Merchant Cash Advance?
If you are considering a merchant cash advance, it’s important to know as much as you can about the process. Here are some of the essential benefits to mull over:
• Effortless Applications: Applying for a merchant cash advance can be done online. You need to ensure that you have your business tax returns, credit card transaction statements, bank account statements, and whatever else is required. You can then upload the documents through the website.
• Fast Funds: Approval comes in a few hours once the provider has everything they need to process the advance. The funds are almost immediate, which is beneficial to time-sensitive payment issues.
• Bad Credit Okay: Merchant cash advance providers don’t only look at your credit rating like typical lenders do. The key to obtaining an advance is strong credit card sales and how long your business has been running. This type of cash advance doesn’t help improve your credit score.
• Zero Collateral: Unlike typical bank loans, you don’t need to offer up collateral such as your home or your car to get the funds.
• Flexible Repayment: With a merchant cash advance, you don’t have a fixed dollar amount that you pay back every month. Instead, you pay a percentage of your daily credit card sales. This flexibility is extremely beneficial during the slower months.
• Higher Limits: Even without significant credit or collateral, merchant cash advance providers can advance you high limits. Depending on your business history and credit card sales, you can borrow anywhere from a few thousand to $2 million.
What is a Factor Rate?
Merchant cash advances don’t have APR, but they do have a factor rate. Factor rates represent the amount that gets paid to the advance provider and is a decimal point between 1.1 and 1.5. Factor rates can be confusing, and it’s not uncommon to misunderstand them. They can cause the interest rate of a merchant cash advance to look lower than it is, so it’s suggested that you speak to your provider and ask them to explain it properly so you understand.
What is a Holdback?
Out of all terms used, “holdback” isn’t the most common concerning merchant cash advances. The holdback is a percentage of the daily credit card sales used to repay your advance. It ranges between 10 and 20 percent.