Maryland Merchant Cash Advance
Merchant Cash Advance (MCA)
An MCA is not actually a loan. It involves a financing company that will provide cash to a merchant for a percentage of their daily debit and credit card sales as repayment. A merchant cash advance is a fast and easy way for a merchant to obtain business financing. There is no need for a merchant to provide collateral. It is not even required to have a great credit score.
There is always an excellent chance a business will qualify to receive an MCA. This is very attractive to a company that has limited business history, no collateral to offer as well as a low credit rating. It could be an effective way to resolve financing problems. Those who provide MCAs usually have simple eligibility standards. This means most small businesses will qualify for an MCA. It is an attractive option when a business makes a significant amount of their revenue with credit card and debit card payments.
MCA Application Process
The process of applying for an MCA is designed to be quick and easy. Those providing an MCA will look at a company’s credit card processing statements to ensure it has sufficient payment volume to cover the MCA fees. There are MCA companies who will request bank statements, credit scores from a company and more.
Applications for an MCA are usually provided online. It is possible for an application to be approved on the same day the application is submitted. A company needs to realize an MCA is fast cash, but it is also expensive cash. Getting an MCA is quick and easy but will come with one of the highest costs for capital available in the market.
MCA In Practice
In most cases, an MCA provider will offer a merchant a lump sum of cash for a portion of their daily debit card and credit card sales. It will involve a merchant giving the MCA provider a specified percentage of sales from their bank account. This can be done by withdrawal from an ACH (Automated Clearing House). An MCA provider may also connect to a merchant’s credit card processor or bank account.
The fees of an MCA provider are calculated using a factor rate and not an interest rate. A factor rate is determined by multiplying an MCA by a factor rate that will determine how much a merchant will owe. These factors can start at 1.14 and go up to 1.48. Should these factors be converted into an APR, they usually begin at 15 percent. Some can get as high as triple digits. MCAs are expensive because providers often work with high-risk borrowers.
Time Required To Pay Off MCAs
The average length of time necessary to pay back an MCA is 9 months or less. In some cases, merchants have paid it off in as few as 4 months and others have taken up to 18 months. This is usually determined by the daily income of a business. A higher fixed percentage of credit card sales will result in a shorter repayment time.
Value Of An MCA
Paying off an MCA with daily credit card and debit card sales can have a significant impact on a company’s cash flow. It also makes it possible for a merchant to pay less on the MCA when their sales are slow. With a term loan, a merchant will have to make their payments on time or they will have to deal with late fees and more. It also is unsecured financing and a merchant does not provide any type of collateral to receive it. A merchant won’t have to put their financial assets or personal residence at risk to obtain financing. The speed at which a merchant can obtain an MCA is very attractive. It can be a huge help when a merchant is faced with an unexpected circumstance requiring quick financing.
When a merchant is considering an MCA, they need to understand everything involved with it. This is financing that is convenient and quick but could also come at a significant cost. It’s possible for an MCA to be paid back quickly without significant harm to a company’s cash flow. It’s important a merchant see if they qualify for better financing options prior to going forward with an MCA.