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The Truth About Merchant Cash Advances

Startups need capital to expand, but getting funds isn’t very easy for a starting business. Fortunately, today enterprises have the alternative of acquiring capital through financing firms like

One product we gladly offer is the merchant cash advance. An MCA is technically a business loan, but more of an advance. The lender uses your oncoming future credit card sales as an asset. Therefore, you simply get an advance amount which you pay back as a portion of your firm’s day-to-day credit card revenue. So there are no collateral requirements for this loan because already a percentage of your debit/credit card revenue is automatically remitted to repay the MCA.

The lender remits their daily portion of your credit card sales even before they reach your business bank account. And because repayment depends on your daily merchant account balance, you pay more when sales are good and less during low seasons.

While an MCA is an expensive alternative, it stands out as the only practical remedy for companies that cannot qualify for a conventional small business loan.

Is an MCA the best Choice for Your Company?

In terms of rates, no! Merchant cash advance rates are a bit higher than conventional loans; so you eventually pay more.

On the other hand, It could be an excellent pick for startups whose owners have bad credit; MCAs are available for those with scores even lower than 600. Plus, it may be a perfect choice if you don’t have hard assets to put on the line.

Again, a cash advance can prove handy if your firm experiences a high volume of per-month transactions like restaurants, salons and retail stores.

Merchant Cash Advance Costs & Repayment

For an MCA, be ready to pay 20% to 40% or even more, of the amount you borrow—a value known as the factor rate. The holdback ranges between 10% and 20%.

Now, to understand the cost of this loan, you need to learn the difference between the factor and the holdback rates?

  • Factor rate refers to payback rate of the whole advance amount.
  • Holdback rate is the percentage the of your business’s card transactions that will be held back as repayment by the financing company.

Why You Should Get an MCA

A business should take time to think before picking a financing product. A Merchant Cash Advance is only one of the multiple options available for micro-businesses. And though costly, it has a few benefits.

  • Quick access to commercial funding
  • Stress-free payback
  • You get funding even with a low FICO score
  • You get the Funding in days (or even less for loans under $100,000)

The bottom line

An MCA is an excellent solution for a business with poor credit but needs quick capital. However, compare what you have to see what’s cheaper and matches your business model more.