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Merchant Cash Advances: A Modern Way To Get Instant Small Business Funding

Alternative sources of funding are a smart way to cover short-term costs or meet any other business expenses. But offerings differ widely, and some may meet your needs better than others.

MCA or merchant cash advances are a form of funding created to offer instant cash to small and medium businesses quickly. They are easy to get hands on, unlike traditional business loans.

Merchant Cash Advances: How They Work

In essence, cash advances are not your conventional loans; here, you get funding by selling a portion of your small companies future sales. So you could end up paying in the skies and wind up with many MCAs at a go.

An MCA gives you access to a lump sum of your firm’s daily sales- depending on the limit your lender allows.

Often, an MCA settlement structures take the form of deductions a percentage ( 8% – 30%) of a company’s daily transactions. Your financing company decides the rate, and this amount is remitted of your business bank per day, per week or per month. Some MCA providers deduct a set amount in dollars.

The cost of your MCA depends on a factor rate and not an APR (annual percentage rate) as with conventional loans and credit lines. Factor rates may range anywhere from 1.1 to 1.5, but your lender decides where to set it.

Multiplying your lump sum amount by the factor rate gives you the much you’ll owe a lender. The period for MCAs is 8 – 9 months, but some agreements as short as three months or may exceed 18 months.

Qualifying for an MCA

Excellent credit is not a must; you only need to ensure your firm meets the criteria below:

  • A history of operations indicating deposits to your bank account (last 6 month of statements)
  • You have a record of processing sales.
  • A minimum per month volume of sales.

It helps to understand that not all lenders are strict to the above requirements. Most of them treat each business case as unique, so whether you qualify or fail depends on how other aspects of your company’s performance hold the fort for you.

Merchant Cash Advance Pros

We could dig deep to the perks of using an MCA, but here’s a list of their pros to get you up to speed.

  • Less strict qualification demands: They are easier to apply and get than traditional loans, which is an advantage for retailers.
  • Speedy cash: You can have a lump sum of cash ready in as little as five days.
  • An easy way to get funding: You get advance money by simply selling your future sales.
  • Percentage-based repayment ensures proportionate settlement based on your daily card sales.
  • No credit checks: Businesses don’t need a perfect credit history to get funding.

Wrapping Up

New-age sources of business funding like MCAs are a creative way to weather your financial storms but should be used carefully. Some micro-lenders are using the opportunity to rip off innocent retailers.