Unpredictable events, changing consumer trends and unexpected costs. It’s safe to say business owners today have a long list of challenges stacked against them. With few business financing options available, many companies are turning to alternative cash solutions like the merchant cash advance.
What is a Merchant Cash Advance?
If you’re unfamiliar with this financing tool, a merchant cash advance (MCA) provides businesses with quick cash – much faster than a traditional lender is able. An MCA provides your company with a lump sum of cash in exchange for a portion of future credit and debit card sales. The repayment process involves fixed daily or weekly debits from your business’ bank account.
The flexibility of the repayment process is very attractive to businesses in a tight spot. Instead of making one fixed payment every month from a bank account over a set repayment period, how much you pay is based on your business’ growth. When your business is doing well, it pays more. If you experience slow months, you pay back less. In short, the fees involved are determined by your ability to repay the merchant cash advance.
For example, let’s say your business needs $30,000 to purchase new machinery or equipment. Your merchant cash advance is approved for $30,000. The provider then assigns a rate of 1.4 on the contract, so you now owe 42,000. The agreement will state how long you have to repay (e.g. 10 months) and the amount each monthly payment will be.
As long as your average monthly credit card revenue remains steady, you pay the agreed upon amount. However, if it suddenly drops, the amount owed that month will be lower and the repayment deadline of the agreement extended. Thus, it’s easy to see why many business owners in need of quick cash and flexibility choose this option.
Why do Businesses Use Merchant Cash Advance?
There are many other reasons why businesses choose this financing method over traditional options. Many small businesses have to get creative to secure funding. Traditional lenders shy away from companies that experience high volume of credit card sales, like restaurants. Startups are also frequently turned away for their lack of financial history. Other businesses are refused financing because their industry is considered “too risky”. Merchant cash advances are offered by providers with experience in helping these business types, and they specialize in helping business owners stabilize their cash flow.
How to Choose a Merchant Account Provider
The next big question is where to secure a merchant cash advance. It’s incredibly important to choose your MCA provider wisely. Not all MCA providers are created equal. Make sure the lender you partner with understands your business type and industry. They should also have years of experience in offering this cash solution. Before entering into any agreement, it’s also important to review the terms of the agreement carefully and understand all costs.
Our team at firstamericanmerchant.com can help you secure the reliable source of funding you need for growth, challenges and opportunities. We have a fast approval process that allows you to have funds in your account in as little as 24 hours. Get in touch with us today to get started.