Taking a small business to the next level isn’t easy at all. No matter how experienced you are, you have to overcome several challenges on your way so to be able to grow and expand your business. Access to working capital such as a cash advance is one of the most important things in this regard. This article will tell you when a Merchant Cash Advance (MCA) can be the right option for you to choose.
What Is a Merchant Cash Advance (MCA)?
An MCA isn’t a loan as many think. In fact, an MCA is simply a sale. The provider “purchases” your future credit card receivables at a discount. So, the provider advances you a lump sum payment, which should be paid back with a percentage of your daily credit and/or debit card receipts.
The percentage or the so-called “holdback percentage” remains constant throughout the life of the MCA. Credit card receipts vary each day, and the daily dollar amount you repay can undergo changes as well.
As a result, there’s no fixed due date to pay off the advance, so the annual percentage rate or APR can be somewhere between 80% – 120%. Anywhere, paying back most of the MCAs usually takes 4 – 18 months. As for lump sum payments, they’re advanced between $5.000 – $500.000 and can’t exceed 50% of your business’s annual credit card sales.
- An MCA has the following benefits:
- High approval rate
- Fast funding and easy renewals
- Simple payback
- Revenue-based collections
- No credit or collateral on the line
When Is a Merchant Cash Advance a Good Option for You?
An MCA is typically ideal for businesses with inconsistent payments like seasonal businesses, which experience significant fluctuations in cash flow. As compared to a business loan, an MCA offers more flexible repayment terms, which helps you avoid a financial burden. Thanks to an MCA, you can maintain your day-to-day operations in between sales, and it’d be easier to meet the repayment terms.
The good news is that when you make less revenue, you’ll be required to pay back less. The repayment amount will increase when you start making more revenue. This can’t be said about to traditional business loans since they have fixed monthly payments, no matter how good or bad your business performance is.
New businesses and those that haven’t been in business for six months, as well as businesses with an owner FICO below 600 can also take advantage of the benefits offered by MCAs.
Shop owners without many hard assets should also consider this type of business funding. If you run a restaurant, bar, or have a B2C company like retail, nail salons, etc., which have a high number of transactions per month, you should also try an MCA.
An MCA is the right business financing solution for those who don’t want a loan on their credit report (an MCA doesn’t generally show up on your credit report).
Finally, an MCA is great for online merchants. Specifically, businesses that conduct most of their sales online can surely apply for an MCA. Why? Because this is a fine opportunity for them to receive a high advance amount in return for just a portion of their daily credit card receipts. However, if your revenue comes via check or cash, an MCA isn’t the best option for you.
How to Get an MCA?
To get a cash advance, look for a reputable MCA provider like FirstAmericanMerchant.com. First American Merchant is an expert alternative online lender that specializes in the high risk industry and carries an A+ rating with the BBB. To compare an MCA from First American Merchant to a small business loan, just read below:
Small Business Loan
- Strict credit requirements
- Long wait times for funding
- Complicated contracts
- Extensive paperwork
MCA From First American Merchant
- Credit scores less than 500 approved
- Funds are available within 72 hours from application
- Simple and flexible programs
- No tax returns or financials
As you see, there are cases when an MCA is the ideal business funding option to choose. Find a respectable MCA provider to apply to if you need to take your business to new heights quickly and easily.