Merchant Cash Advances (MCAs) are capable of providing you with the money that you need when you need it. These aren’t loans. Instead, a Merchant Cash Advance provides you with an advance based on the credit card sales deposited into your business merchant account. If you are a business owner, you can apply for an MCA and get the funding that you need within 24 hours. Funds are deposited directly into your business checking account to ensure that you get the money as quickly as needed.
There are quite a few pros for obtaining merchant cash advances.
– Get the money fast
– Get approved easily
– Great for many types of businesses
– Bad credit isn’t a problem
There are also a few cons of merchant cash advances that you should be aware of.
– The fees are higher than traditional business loans
– Cash flow is reduced daily while you repay the advance
– You can’t change merchant service providers until the loan has been repaid
Understanding Merchant Cash Advances
You may need money quickly for your business. When this is the case, a merchant cash advance makes a lot of sense. You can raise the funds you need quickly. You can also choose to use the funds in any way. You may need to pay bills, take care of payroll, or even invest in new equipment. Many businesses will use merchant cash advances because of having a poor revenue month or because of a sudden business opportunity.
You will want to weigh the pros and cons before you decide whether a merchant cash advance is right for your business.
How a Merchant Cash Advance Works
Obtaining a merchant cash advance is easier than you might think. Because it isn’t alone, you don’t have to go through an extensive application process. An MCA is an advance, so it is given based upon future income. The provider will issue you a lump sum. You repay the amount automatically based on a percentage of the daily earnings in your merchant account. The percentage you pay is identified as a retrieval rate or hold back. Depending on the merchant cash advance provider, this can vary between 5% and 20%. As for the repayment term, it can be anywhere between 90 days and 24 months.
You can determine how much you borrow. It will be based on the average sales that you run using credit cards. Many of the MCA providers will look at receipts over the past several months to determine what you qualify for. In many instances, you can receive a cash advance of 50 to 250% of the total monthly credit card transactions from your business.
The Perks of a Merchant Cash Advance
There are quite a few perks to an MCA, which are appealing to business owners in search of a temporary financial fix. As you review merchant cash advances, there are some benefits to consider.
Simple applications: You can complete a merchant cash advance application online. You will upload documents and get the approval within a few hours.
Funding is quick: You will be able to have the funding deposited directly into your merchant account. Once you receive the approval, the funding may only take minutes.
Your credit doesn’t matter: The MCA provider is focused on your monthly credit card transactions, not on your credit score. This means you don’t have to worry about a bad credit score standing in your way of getting approved.
No collateral: Just as your credit score doesn’t matter, neither does having collateral. There is no need to put up any personal assets in order to get a cash advance.
Flexible payments: when applying for a small business loan, you have a fixed interest rate and therefore a fixed payment. This can be difficult when your income varies from month-to-month. Merchant cash advances provide you with flexibility because the payment is a fixed percentage rate. Your payment is, therefore, a percentage of your credit card sales.
Higher limit: Often, you can qualify for a high limit merchant cash advance of several thousand dollars, or even considerably more. As long as you can prove that your monthly credit card transactions are high, you can access higher limits.
What You Need to Know
Merchant cash advances are not for everyone. If you are a business in need of cash quickly and have a well-established credit card transaction history, this may be a great opportunity for you. Restaurants and retailers are prime candidates.
If you are just starting out and you have a poorly established credit card history, the cost may outweigh the benefits of getting a merchant cash advance.
You will also want to factor the rates because a merchant cash advance does not use an APR. Instead, you pay a factor rate that can be between 1.1 and 1.5.
There are alternatives to merchant cash advances, too. You may want to explore a business credit card or term loans. Consider the costs, whether you need the repayment terms to be fixed, as well as how long you can wait in order to get the funding that you need.
Once you explore all of the terminology and decide if merchant cash advance is best for your business, you can then decide to make an application and get approved.