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merchant cash advance direct lenders
Many business owners are under the impression that a merchant cash advance is a loan. However, it is not a loan. It is a unique cash advance that is based upon the total amount of credit card sales deposited within the business owner’s commercial account.
Merchant cash advances continue to grow in popularity because a business owner can have capital deposited into their checking account within one day or several days after being approved. This is a better option when you consider that it could take 30 to 90 days for a conventional loan to be approved by a bank.
The MCA lender uses a different approach when they evaluate the prospective borrower’s capability to repay the loan. They review daily credit card receipts to see if the prospective borrower will be able to honor the repayment terms associated with the advance. However, it’s imperative to point out that the rates for a merchant cash advance can be pretty high. It’s important for you to make sure that you understand the terms, so that you can make the right decision for your business.
What is a Holdback?
It’s not unusual for business owners to be perplexed when they hear this term, or see it written in the MCA paperwork. A holdback is the percentage of daily credit card sales applied to your advance. The holdback percentage can range from ten percent to twenty percent. The holdback rate does not fluctuate. It’s fixed until the advance is paid off.
If your business does numerous credit card transactions daily, you will be able to pay off the advance in a shorter period of time. If credit card transactions are unexpectedly low for a particular day, the draw from the merchant account will be lowered. In short, incoming credit card receipts will have an impact on the payback.
What’s the Difference between the Holdback Amount and Interest Rate?
There’s a distinct difference between the holdback amount and the interest rate attached to the advance. It’s not unusual for many MCA suppliers to charge a factor rate. The factor rate is not amortized during the advance.
The factor rate for an MCA can be double digit figure or a triple digit figure. The provider sets the terms for the rate.
Is a Merchant Cash Advance Ideal for Your Business?
It’s not a pleasant feeling when your business does not have enough capital to seize a promising opportunity that can generate impressive revenue. An MCA is a unique way of getting quick cash for your business, but there are some things that you should consider before seeking one. For instance, can your business afford to deal with the costs associated with a merchant cash advance?
An MCA may appear to be more attractive since less paperwork is involved, and you will not have to deal with the strict requirements laid forth by traditional small business lenders. However, a merchant cash advance can be expensive. It’s also vital to point out that an MCA will not improve your company’s credit profile. Despite these cons, many small business owners are able to use a merchant cash advance to their favor.
Are There Other Financing Alternatives?
There are other short-term financing options for small businesses. Some small business owners apply for short-term loans from small credit unions. If your business has a strong credit profile, you can get a line of credit. With a line of credit at hand, you can use it when you need capital. At the end of the day, a merchant cash advance will always be on the table if you are not interested in dealing with banks or credit unions.
If you’ve been unable to secure a business loan in other ways, such as by going through a traditional bank or a credit union, then consider a merchant cash advance from companies. You shouldn’t think of this kind of advance like a typical loan. Although you’re getting money that you need for your business, the way that the loan is paid back to the company is a bit different. It’s sometimes easier to secure a merchant cash advance, especially if you’ve been in business for some time and you can show that you have sales that are high enough to pay back the loan within the designated time.
This type of loan works in a simple manner if you already accept credit and debit cards as payment from customers. The company that you decide to apply through will usually check your credit and look at how long you’ve been in business. If you’re approved, then you will be given the loan as you would with any other company. Some merchant cash advance companies have a strict policy of when the loan has to be paid back, but there are many that are flexible as long as a minimum payment is made each month. When you get the loan, you can use the money in your business in any way you see fit. When you close your credit and debit card sales at the end of the day, a percentage of the sales is then sent to the merchant as a payment on the loan. This means that you don’t have to worry as much about sending a lump sum of money to the merchant for the money that you borrowed. As long as you have customers in the store and your customers use a card to make a payment, then you will be able to pay back the loan with ease.
A merchant advance is often an easy way to secure a loan and easier to pay back than other types of loans since you really don’t even have to think about submitting a payment. However, if you don’t have many customers during the day or you don’t have customers who use cards as a payment option, then you might have to contact the merchant to set up another kind of payment for that day. There usually isn’t a collateral requirement, which is beneficial if you are just getting started in your business and need a loan to pay the fees to get your company up and running. This type of loan is also beneficial if you don’t have a good credit score as this is sometimes not looked at as much as your income for your business.
There is usually a maximum cash advance that you can get as well as a minimum. The maximum is usually $250,000. Keep in mind that you need to ensure that you’re going to have enough business to make the payment. If you have a small business or one that people don’t know about yet, then you might want to start with a smaller loan to see how well the process works. In most situations, you can apply for another loan in the future or add on to the amount that you already have after paying back a certain amount. The merchant is looking for you to show that you have enough sales to make the payment and that you can get the loan paid back within the designated time, which for most companies is 18 months to two years. It usually takes only a few days for you to get approved and receive your money from a merchant cash advance.