A financing company can advance your capital with a merchant cash advance while exchanging a percentage of your credit card sale and a fee. These advances are easy-to-get and fast; you don’t necessarily need to have a high credit score to get approved.
What is a business cash advance?
Most people use the terms business cash advance and merchant cash advance like it is the same thing. But, lenders who offer business cash advance operate differently than MCA.
But instead of paying back a percentage of your daily credit card sales, you pay back a percentage of your total credit card; the payments are made with ACH withdrawals.
Like MCA, the payments fluctuate and depends whether your business has been good or slow.
What is a merchant cash advance?
Merchant cash advance is a type of loan that is funded and approved within a day or two with minimum paperwork. In exchange, you pay back the lender a percentage of your credit card sales daily. While it is one of the fastest financing options in the market, it is also the most expensive.
Working of a merchant cash advance
Applying for loans takes a lot of time when you are applying for extra capital for your business. There is also a high chance of not qualifying after you send your application. If you don’t have the time or did not qualify for a loan, an MCA is the best option for you.
Instead of an interest rate, MCA providers use the factor rate to measure their fees. Typically, a factor rate ranges between 114 and 148; you need to multiply it by your loan amount to find the total amount you owe.
On an average, it can take up to 8-9 months to repay an MCA. But, the repayment time frame depends entirely on your business.
Merchant Cash Advances qualifications
Merchant cash advance (MCA) providers have eligibility standards that are easy to meet, hence if you have no collateral, low credit ratings or limited business history, MCAs can be a solution for your financial problems.
Businesses like restaurants can use MCA as a short-term financing tool since most of the revenue is through credit card transactions. It helps with inventory purchase, working capital, unexpected payments, etc.
Documents needed to apply
• Credit Card Processing Statements
• Business Tax Returns
• Credit Score
• Bank Statements
• Voided Business Check
• Driver’s License
• Quick fund access
• Approval process is easy
• Acceptance of bad credit
• Suitable for different business purposes
• Traditional loans are way cheaper
• Cannot change merchant service provider flexibly
• Credit card deduction reduces cash flow
Is it worth it?
It is entirely up to your business model. In one instance, paying off daily credit card payments can hamper your cash flow. On the other hand, you can repay small amounts of money during slow months. But, you must always remember merchant cash advance is the more expensive financing option today.