As an alternative funding option, a merchant cash advance (MCA) is ideal for those who need quick access to working capital and lack good credit history. Let’s reveal more about MCAs and see who can best help you with a reliable and affordable cash advance.
Merchant Cash Advance: How It Works
When applying for an MCA, you receive a lump-sum payment for a specific amount. To make repayments, you should give the MCA provider the right to participate in your business’s credit card sales.
The part that the MCA provider takes is known as the “holdback.” The latter’s amount gets automatically debited from your bank account daily and electronically transferred to the provider. 10% – 20% of the amount goes to the holdback and is associated with your daily credit card sales.
The cost of the financing is known as the “factor rate.” The latter is a percentage making up 20% – 50% of the lump sum advance.
There are many MCA providers in the industry that you can apply to when in need of extra financing. Consider turning to a reputable cash advance provider like FirstAmericanMerchant.com in the U.S., an award-winning leader in the high-risk field. FAM carries an A+ rating with the BBB and offers the cheapest possible rate in the space.
Pros and Cons of an MCA
The MCA industry dates back to the 1990s. It became more popular in 2005. When the country faced a recession in 2008, financial institutions limited their parameters associated with the underwriting process. As a result, many applicants got rejected. These applicants decided to turn to MCA providers.
Let’s go through the advantages and disadvantages of MCAs so you can figure out whether this financing solution can be the right choice for you or not.
Advantages
- Quick access to the necessary funds you need for your business. The funds can be available in a week or even as soon as 24 hours.
- The repayment is due to your daily credit card sales volume. So, if you’re having a slow sales period, the MCA provider won’t charge you much by readjusting the daily holdback of your transactions.
- You won’t be required to provide collateral when applying.
- Even if you have a credit score below 600, you can be eligible for an MCA.
- The application process is simple and hassle-free.
- The approval rate is high.
Disadvantages
- The MCA rates are much higher as compared to other types of business funding, including credit cards.
- You may have to refinance the MCA, sometimes by applying for another MCA.
- Unlike banks, credit unions, credit card companies, and other business funding providers, which are heavily regulated, the MCA industry lacks regulation.
- As a rule, the payback period is shorter as compared to loans.
Should Your Business Get an MCA or Not?
MCAs provide quick access to cash without forcing you to go through a rigorous application process. MCAs are ideal for those who need capital to overcome an emergency. The pros and cons of an MCA can help you decide whether you should apply for this type of funding or not. When applying, make sure to work with a reliable provider.