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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.