Be sure to read this before getting a cash advance for your company.
January 08, 2022
We all know that making our business a mature business and keeping it there is an expensive endeavor, and sometimes you need a little financial help. Whether you require money to buy inventory, pay employees, make emergency repairs, pay for marketing expenses, buy equipment or simply adjust your current cash flow, a merchant cash advance is an option to consider if you require immediate cash flow in your business.
While taking out a bank loan may seem like an obvious solution in this situation, it can be difficult if your business has fluctuating revenue, a low credit score, or simply does not have enough time to wait for a long approval period. In these cases, this particular type of financing can help.
If you are considering an MCA, this article will tell you everything you need to know about eligibility, costs, and pros and cons.
Before we continue, it is important to be clear about the term MCA. Simply put, a Merchant Cash Advance converts expected debit and credit card sales into immediate equity. It is a form of financing for small businesses that should not be confused with a bank loan. In this scenario, a company gives you a lump sum that you pay back via a percentage of your daily credit card and debit card sales plus a fee. Typically, MCA are repaid daily or weekly and the finance company automatically collects the payment from your payment processor. This way, repayments are based on your sales - if you experience a drop in sales, your payments will also be lower, but it will take longer for you to repay the advance.
How do you know if this is the best option for your business? To answer this question, let us evaluate the risk, pros and cons of this type of small business financing.
Understanding the common problems associated with MCA will help you mitigate them.
Repaying an MCA can be expensive because of the high APR. It can be in the triple digits.
As your sales improve, so will your payouts. Remember that you are using a percentage of credit card sales.
These are commercial transactions, and the regulations in this regard are still weak.
The interest rate is fixed in the factor rate, so there is no advantage for early repayment.
On the other hand, merchant cash advances offer benefits to small businesses, including the payment plan - you only pay back your advance when your business makes a sale that is paid for with a credit card. If you have had high sales but are struggling with inadequate credit, less-than-perfect credit or a poor credit score, a merchant cash advance may be a good option for your business. Here we introduce you to the benefits of an MCA.
Fast funding. It's a really fast process. You can often get an MCA within 24 hours or so without having to submit extensive documentation. The application process is really simple. You usually only need to provide a few months' worth of credit card statements and bank statements. If you apply online and are approved, the money can be in your company's bank account within 24 to 48 hours.
Lenders always take a fixed percentage of your revenue, no matter how high or low it is. If revenue goes down, so can your payment. When the repayment plan is based on a fixed percentage of your revenue, repayments adjust based on the success of your business.
It does not matter if you have bad credit. Lenders are more interested in your future than your past.
MCAs are unsecured, meaning you do not have to put up physical collateral. This alternative allows small business owners to finance their operations without fear of losing their property. That means you do not have to provide assets up front to secure your financing - and risk losing those assets if you can not repay.
The amount you owe does not grow. If you are approved for an MCA, you must repay the loan plus the factor fee charged by the lender. You know in advance exactly how much money you need to repay to settle your account. With MCAs, there are no late fees and no interest is charged.
Tip: Use an MCA as a temporary solution to your business problems. While MCAs can help some small business owners overcome temporary cash shortages, they are not a long-term solution.
In summary, merchant cash advances are excellent for small business owners who want to modernize their operations without interruption. We know that bank loans may not be available for all the things a small business owner wants to do. So if your business needs an extra cash injection to become more competitive and functional, this is an option to consider.
If you have any questions or would like more information, call or text us @ 917-243-3113